AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 7, 1997
REGISTRATION NO. 333-05955
==========================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------------
GRAND COURT LIFESTYLES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 8059 22-3423087
-------- ---- ----------
(State or other (Primary standard industrial (I.R.S.
jurisdiction classification code number) employer
of incorporation identification
or organization) number)
-----------------
2650 N. Military Trail
Suite 350
Boca Raton, Florida 33431
(561) 997-0323
(Address, including zip code, and telephone number,
including area code, of registrant's
principal executive offices)
-----------------
John W. Luciani, III, Executive Vice President
Grand Court Lifestyles, Inc.
2650 N. Military Trail
Suite 350
Boca Raton, Florida 33431
(561) 997-0323
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
-----------------
Copies to:
John T. Hood, Esq. Stephen A. Weiss, Esq.
Reid & Priest LLP Greenberg Traurig Hoffman
40 West 57th Street Lipoff Rosen & Quentel
New York, New York 10019 153 East 53rd Street
(212) 603-2000 New York, New York 10022
(212) 801-9200
Approximate date of commencement of proposed distribution to the
public: As promptly as practicable after the effective date of this
registration statement.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box: [x]
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act of 1933, please
check the following box and list the Securities Act registration statement
number of the earlier effective registration statement for the same
offering: [ ] ____________
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act of 1933, check the following box and
list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [ ] ____________
If delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following box: [ ]
CALCULATION OF REGISTRATION FEE
==========================================================================
PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OFFERING AGGREGATE REGISTRA-
OF SECURITIES TO BE AMOUNT TO BE PRICE PER OFFERING TION FEE
REGISTERED REGISTERED SHARE(1) PRICE(1) (2)
--------------------------------------------------------------------------
Common Stock, $.01 par 2,990,000 $10.00 $29,900,000 None
value per share shares(3)
--------------------------------------------------------------------------
Preferred Stock, $.0001 5,750,000 $10.00 $57,500,000 11,333.33
par value per share shares
--------------------------------------------------------------------------
Common Stock, $.01 par 260,000 $16.50 $ 4,290,000 1,300.00
value per share shares(3)(4)
--------------------------------------------------------------------------
Preferred Stock, $.0001 500,000 $16.50 $ 8,250,000 2,500.00
par value per share shares(5)
==========================================================================
(1) Estimated solely for the purpose of computing the registration fee.
(2) Excludes a registration fee of $17,241.38 based on a proposed maximum
aggregate offering price of $50,000,004 which previously has been paid
with respect to 2,777,778 shares of Common Stock.
(3) Plus such indeterminate number of shares of Common Stock as may be
issuable upon conversion of the Convertible Preferred Stock being
registered hereunder pursuant to Rule 457(i).
(4) Represents shares of Common Stock issuable upon exercise of
Representative's Warrants.
(5) Represents shares of Preferred Stock issuable upon exercise of
Representative's Warrants.
-----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
===========================================================================
<PAGE>
SUBJECT TO COMPLETION, DATED FEBRUARY 7, 1997
5,000,000 SHARES OF % SENIOR CONVERTIBLE REDEEMABLE PREFERRED STOCK
AND
2,600,000 SHARES OF COMMON STOCK
GRAND COURT LIFESTYLES, INC.
This Prospectus relates to an offering (the "Offering") of (a)
5,000,000 shares of % Senior Convertible Redeemable Preferred Stock,
$.0001 par value, and $10.00 liquidation preference per share (the
"Convertible Preferred Stock") and (b) 2,600,000 shares of Common Stock,
$.01 par value ("Common Stock") of Grand Court Lifestyles, Inc. (the
"Company"), of which 2,100,000 shares are being sold by the Company and
500,000 shares are being sold by certain principal stockholders of the
Company (the "Selling Stockholders"). The Convertible Preferred Stock and
Common Stock are sometimes collectively referred to as the "Securities".
The Company will not receive any of the proceeds from the sale of Common
Stock by the Selling Stockholders. See "Principal and Selling
Stockholders."
The Convertible Preferred Stock is convertible into Common Stock at
any time prior to redemption at the rate determined by dividing $10.00 (the
initial offering price per share of Common Stock) by $12.00 (120% of the
initial offering price per share of Common Stock), an effective conversion
rate of approximately 0.8333 shares of Common Stock for each share of
Convertible Preferred Stock (subject to adjustment under certain
circumstances). Commencing March , 2000, the Convertible Preferred Stock
is subject to redemption by the Company, in whole or in part, at $10.00 per
share, plus accumulated and unpaid dividends, on 30 days' prior written
notice, provided that the closing bid price of the Common Stock for at
least 20 consecutive trading days ending not more than 10 trading days
prior to the date of the notice of redemption equals or exceeds $15.00 per
share (150% of the per share initial offering price), or after March ,
2001, at the cash redemption prices set forth herein, plus accumulated and
unpaid dividends. Cumulative dividends on the Convertible Preferred Stock
at the rate of $ per share per annum are payable quarterly, out of funds
legally available therefor, on the last business day of January, April,
July and October of each year, commencing April 30, 1997.
Prior to this Offering, there has been no market for the Securities
and there can be no assurance that such a market will develop after the
completion of this Offering or, if developed, that it will be sustained.
It is anticipated that the initial offering price of both the Convertible
Preferred Stock and the Common Stock will be $10 per share. For
information regarding the factors considered in determining the initial
public offering price of the Securities and the terms of the Convertible
Preferred Stock, see "Risk Factors" and "Underwriting." The Common Stock
has been approved for listing on the Nasdaq National Market under the
symbol "GCLI," subject to certain conditions. The Company intends to apply
for listing of the Convertible Preferred Stock on the Nasdaq National
Market under the symbol "GCLIP."
AN INVESTMENT IN THE SECURITIES INVOLVES SUBSTANTIAL RISKS. SEE
"RISK FACTORS" BEGINNING ON PAGE 10 FOR A DISCUSSION OF CERTAIN
MATTERS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
-----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
==========================================================================
PROCEEDS
PROCEEDS TO
TO SELLING
PRICE TO UNDERWRITING COMPANY STOCKHOL-
PUBLIC DISCOUNTS(1) (2)(3) DERS(2)(3)
--------------------------------------------------------------------------
Per Share of Convertible
Preferred Stock . . . $ $ $ $
--------------------------------------------------------------------------
Per Share of Common
Stock . . . . . . . . . $ $ $ $
-------------------------------------------------------------------------
Total $ $ $ $
==========================================================================
(see footnotes on following page)
-----------------
The Securities are being offered by the Underwriters, subject to prior
sale, when, as and if delivered to and accepted by the Underwriters and
subject to approval of certain legal matters by their counsel and subject
to certain other conditions. The Underwriters reserve the right to
withdraw, cancel or modify this Offering and to reject any order in whole
or in part. It is expected that delivery of the Securities will be made in
Seattle, Washington, on or about March , 1997.
-----------------
NATIONAL SECURITIES CORPORATION
The date of this Prospectus is March , 1997
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL
OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
<PAGE>
[INSIDE FRONT COVER OF PROSPECTUS]
GRAND COURT LIFESTYLES, INC.
ADULT LIVING COMMUNITIES
[Rendering of prototype of Adult Living
Communities to be built by the Company]
[Resident Photo-Couple] [Resident Photo-Woman] [Photo of Chef]
Rendering of a prototype
Adult Living Community
for the Company's new development plan,
with pictures of residents and chef
["The Grand Court"(R) logo]
offering both independent and assisted living services
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
SECURITIES OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE
PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
The Company intends to furnish its stockholders with annual reports
containing financial statements audited and reported upon by its
independent certified public accountants after the end of the fiscal year,
and make available such other periodic reports as the Company may deem to
be appropriate or as may be required by law.
<PAGE>
[Left page of foldout of
inside front cover of
Prospectus]
Longview, TX
San Antonio, TX
[Photo of [Photo of
interior lobby exterior
of the Grand building of the
Court Grand Court II,
Belleville, Kansas City,
Illinois] Kansas]
Columbus, OH Belleville, IL
[with arrow
pointing to ["The Grand
photo of The Court"(R) logo]
Grand Court
Belleville,
Illinois]
Tampa, FL
[with arrow pointing
to photo Findlay, OH
of the Grand Court
Tampa, Florida] Lakeland, FL
Fort Myers, FL
Bryan TX Morristown, TN
[Aerial photo of [Photo of
The Grand Court exterior
Tampa, Florida] building of the
Grand Court Las
Vegas,
Nevada]
Weatherford, TX
Las Vegas, NV
[with arrow pointing
to photo of The Grand
Court Las Vegas,
Nevada]
Springfield, OH
North Miami, FL
Shown above are the locations and pictures of certain adult living
communities operated by the Company.
<PAGE>
[Right page of fold-out
of inside front cover
of Prospectus]
Kansas City, KS Chattanooga, TN
[with an arrow pointing [with arrow pointing to
to photo of the Grand photo of the Grand
Bristol, VA Court II Kansas City, Court Chattanooga,
Kansas on Tennessee]
left page of fold-out]
[Photo of exterior
building of the Grand
Court Phoenix, [Aerial photo of the
Arizona] Grand Court
Chattanooga,
Tennessee]
Phoenix, AZ Pompano Beach, FL
[with arrow pointing to
photo of The Grand Court
Phoenix, Arizona]
Overland Park, KS
[with arrow pointing to
photo of The Grand
Court Overland Park,
Dayton, OH Kansas]
Lake Worth, FL
[with arrow Pensacola, FL
pointing to
photo of the
Grand Court
Lake Worth, FL] Tavares, FL
Kansas City, MO Lubbock, TX
Farmington, MI
[Photo of exterior
courtyard and building
of The Grand Court
Lake Worth, Florida] Novi, MI
[Photo of exterior
courtyard and building
of the Grand Court
Memphis, TN Overland Park, Kansas]
Shown above are the locations and pictures of certain adult living
communities operated by the Company.
<PAGE>
(continued from cover page)
(1) Does not include additional compensation payable to National
Securities Corporation, the representative of the several Underwriters
(the "Representative"), in the form of (i) a non-accountable expense
allowance of up to 2% of the gross proceeds of the Offering, of which
$50,000 has been paid by the Company to date and (ii) warrants to
purchase from the Company up to 260,000 shares of Common Stock and
500,000 shares of Convertible Preferred Stock ("Representative's
Warrants") at a price equal to 165% of the per share price to the
public of the Common Stock and the Convertible Preferred Stock,
respectively, exercisable over a period of four years commencing one
year after the date of this Prospectus. In addition, the Company and
the Selling Stockholders have agreed to indemnify the Underwriters for
certain liabilities, including liabilities under the Securities Act of
1933, as amended. See "Underwriting."
(2) Before deducting expenses (which include, but are not limited to, (i)
the 2% non-accountable expense allowance payable to the Representative
and (ii) a finders fee payable to a third party of $250,000),
estimated at approximately $3,790,000. All expenses of the Offering
will be paid by the Company, except that the Selling Stockholders will
pay underwriting discounts and a pro rata share of the non-accountable
expense allowance with respect to shares sold by them.
(3) The Company and the Selling Stockholders have granted to the
Underwriters an option exercisable within 45 days after the date of
this Prospectus to purchase up to 390,000 additional shares of Common
Stock, of which up to 315,000 shares will be sold by the Company and
up to 75,000 shares will be sold by the Selling Stockholders, and up
to 750,000 additional shares of Convertible Preferred Stock, upon the
same terms and conditions as set forth above, solely to cover over-
allotments, if any (the "Over-allotment Option"). If such Over-
allotment Option is exercised in full, the total Price to Public,
Underwriting Discounts, Proceeds to the Company and Proceeds to
Selling Stockholders will be $ , $ , $
and $ , respectively.
<PAGE>
[This page intentionally left blank]
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more
detailed information and the consolidated financial statements, including
the notes thereto, appearing elsewhere in this Prospectus. Unless the
context otherwise requires, (i) all references herein to the "Company"
include the Company, its subsidiaries and its predecessors taken as a
whole, (ii) all references herein to a "fiscal" year refer to the fiscal
year beginning on February 1 of that year (for example, "fiscal 1995"
refers to the fiscal year beginning on February 1, 1995) and (iii) all
information in this Prospectus assumes an initial offering price of $10.00
per share of Common Stock and $10.00 per share of Convertible Preferred
Stock and no exercise of the Over-allotment Option, and (iv) all
information in this Prospectus assumes a dividend rate on the Convertible
Preferred Stock of 8.5%, the mid-point in the range for the dividend rate
of between 8% and 9%. Other than in the consolidated financial statements,
all share and per share data has been restated to give effect to a
1,626.19-for-1 stock split and reduction in par value per share of Common
Stock from $.10 to $.01 which will occur on the date of this Prospectus.
This Prospectus contains certain forward-looking statements which involve
certain risks and uncertainties. The Company's actual results could differ
materially from the results anticipated in these forward-looking statements
as a result of the factors set forth under "Risk Factors" and elsewhere in
this Prospectus.
THE COMPANY
General
Grand Court Lifestyles, Inc. (the "Company"), a fully integrated
provider of adult living accommodations and services, acquires, finances,
develops and manages adult living communities. The Company's revenues have
been, and are expected to continue to be, primarily derived from sales of
partnership interests in partnerships it organizes to finance the
acquisition of existing adult living communities. The Company manages such
adult living communities and, as a result, is one of the largest operators
of adult living communities in the United States, operating communities
offering both independent and assisted-living services. The Company
currently operates 32 adult living communities containing 4,646 apartment
units in 11 states in the Sun Belt and the Midwest. The Company also
operates one nursing home and one residential apartment complex. To the
extent that the development plan to construct new adult living communities,
as described below, is successfully implemented, the Company anticipates
that the percentage of its revenues derived from sales of partnership
interests would decrease and the percentage of its revenues derived from
newly constructed communities would increase. As a result of anticipated
start-up losses from the Company's new adult living communities, the
Company anticipates that it will incur operating losses for at least two
years.
Partnership Offerings
The Company has derived, and it expects to continue to derive, a
substantial portion of its revenues from sales of partnership interests in
partnerships it organizes to finance the acquisition of existing adult
living centers. The Company has financed the acquisition and development
of the 32 adult living communities and other properties that it operates by
utilizing mortgage financing and by arranging for the sale of limited
partnership interests in 37 limited partnerships ("Investing Partnerships")
formed to acquire interests in the 32 other partnerships that own adult
living communities and other properties ("Owning Partnerships"). The
Company is the managing general partner of all but one of the Owning
Partnerships and manages all of the adult living communities, the one
nursing home and the one residential apartment complex in its portfolio.
The Company is also the general partner of 26 of the 37 Investing
Partnerships. As a result of its financing acquisitions by arranging for
the sale of partnership interests, the Company retains a participation in
the cash flow, sale proceeds and refinancing proceeds of the properties
after certain priority payments to the limited partners. The limited
partners typically agree to pay their capital contributions over a five-
year period. Past offerings have provided, and it is anticipated that
future offering will provide, that the limited partners will receive
guaranteed distributions during each of the first five years of their
investment equal to between 11% to 12% of their then paid-in scheduled
capital contributions. Pursuant to the management contracts with the
Owning Partnerships, for such five-year period, the Company is required to
pay to the Owning Partnerships, amounts sufficient to fund (i) any
operating cash deficiencies of such Owning Partnerships and (ii) any part
of such guaranteed return not paid from cash flow from the related property
(which the Owning Partnerships distribute to the Investing Partnerships for
distribution to limited partners). During the fiscal year ended January
31, 1996 and the nine months ended October 31, 1996, the Company paid
approximately $917,000 and $4.0 million, respectively, with respect to
guaranteed return obligations, and paid approximately $1.6 million and $1.6
million, respectively, with respect to operating cash deficiencies. The
Company anticipates that for at least the next two years, the aggregate
guaranteed return obligations with respect to existing and future Investing
Partnerships will exceed the aggregate cash flow generated by the related
properties, which will result in the need to utilize cash generated by the
1
<PAGE>
Company to meet its guaranteed return obligations. The Company's
obligations with respect to guaranteed returns and operating cash
deficiencies are contractual obligations of the Company to make payments
under the management contracts to the Owning Partnerships. In general, the
accrual of expenses arising from obligations of the Company, including such
obligations under the management contracts, reduces the amount of earnings
that might otherwise be available for distribution to stockholders. The
aggregate amount of guaranteed return obligations for each of the fiscal
years 1996 through 2002 based on existing management contracts is $12.4
million, $14.8 million, $13.7 million, $15.1 million, $13.3 million, $7.4
million and $300,000, respectively. Such amounts of guaranteed return
obligation are calculated based upon paid-in capital contributions of
limited partners as of January 31, 1996 with respect to fiscal 1996 and
remaining scheduled capital contributions (as adjusted to reflect certain
property refinancings that resulted in the return of capital to limited
partners) with respect to fiscal years 1997 through 2002. Actual amounts
of guaranteed return obligations in respect of such contracts will vary
based upon the timing and amount of such capital contributions.
Furthermore, such amounts of guaranteed return obligations are calculated
without regard to the cash flow the related properties will generate that
can be used to meet such obligations.
In the past, limited partners have been allowed to prepay capital
contributions. The amount of the prepayments received upon the closings of
the sales of limited partnership interests in Investing Partnerships, as a
percentage of total sales price, averaged 63.9% in fiscal 1993, 64.6% in
fiscal 1994, 52.6% in fiscal 1995 and 54.7% for the nine months ended
October 31, 1996. Prepayments of capital contributions do not result in
the prepayment of the related purchase notes held by the Company. Instead,
such amounts are loaned to the Company by the Investing Partnership. As a
result of such loans and crediting provisions of the related purchase
agreements, the Company records the purchase notes net of such loans.
Therefore, these prepayments act to reduce the recorded value of the
Company's note receivables and reduce interest income received by the
Company. Pursuant to the terms of offerings, the Company has the option
not to accept future prepayments by limited partners of capital
contributions. The Company has not determined whether it will continue to
accept prepayments by limited partners of capital contributions.
The existing adult living communities and the other properties managed
by the Company are owned by the Owning Partnerships and not by the Company.
Future revenues, if any, of the Company relating to such communities would
primarily arise in the form of (i) deferred income earned on sales of
interests in the Owning Partnership for such communities, (ii) management
fees and (iii) amounts payable by the Investing Partnerships to the Company
in the event of the subsequent sale or refinancing of such communities.
At October 31, 1996, the Company had approximately $23.8 million
principal amount of debt ("Investor Note Debt") secured by notes from
investors in offerings of limited partnership interests, which debt has an
average interest rate of 10.51% per annum. The average collection rate
with respect to such investor notes in the last 5 years was in excess of
99% of the principal amount thereof that became due and such collections
have been sufficient to pay interest and principal with respect to the
Company's related Investor Note Debt. There can be no assurance that
future collections will continue at such rate. In the event that future
collections are not sufficient to pay interest and principal with respect
to the Company's related Investor Note Debt, the Company would need to pay
the shortfall from cash generated by its operations and, as a result, the
Company's business, operating results and financial condition could be
adversely affected.
Although the Company is no longer either a general or limited partner
in the partnerships relating to multi-family properties, the Company holds
promissory notes from Investing Partnerships which were formed to acquire
controlling interests in Owning Partnerships which own multi-family
properties. As of October 31, 1996, the recorded value, net of deferred
income, of multi-family notes was $106.5 million. All but $348,000 of the
$52.6 million of "Other Partnership Receivables" recorded on the Company's
Consolidated Balance Sheet as of October 31, 1996 relate to multi-family
notes. A number of the Owning Partnerships for such multi-family
properties are in default on their respective mortgages. Certain of such
Owning Partnerships (the "Protected Partnerships") have filed, or are soon
expected to file, bankruptcy petitions seeking protection from foreclosure
actions. The Selling Stockholders and one of their affiliates have
assigned certain interests they owned personally to the Investing
Partnerships which own controlling interests in the Protected Partnerships,
which assigned interests provide additional security for the multi-family
notes issued to the Company by such Investing Partnerships. The Company
has recorded a loss for the nine months ended October 31, 1996 in the
amount of $18.4 million, representing the recorded value, net of deferred
income and net of any previously established reserves, due to the
impairment of these multi-family notes. As a result of the transfers by
the Selling Stockholders and their affiliate of these assigned interests to
the Investing Partnerships that issued such multi-family notes, the Company
recorded a contribution to capital in the amount of $21.3 million and the
recorded value of such multi-family notes remains unchanged. The Company
2
<PAGE>
believes that it will collect these multi-family notes due to the
additional security provided by the assigned interests.
There are 18 remaining Owning Partnerships which own multi-family
properties that are in default of their mortgages. As of October 31, 1996,
the recorded value, net of deferred income, of the multi-family notes and
"Other Partnership Receivables" held by the Company in said properties was
$33.8 million. The Company has established reserves of $10.1 million to
address the possibility that these notes may not be collected in full. It
is possible that such other Owning Partnerships that own multi-family
properties that are in default on their mortgages will file bankruptcy
petitions or take similar actions seeking protection from their creditors.
In addition, many of the multi-family properties are dependent to
varying degrees on housing assistance payment contracts with United States
government, most of which will expire over the next few years. In view of
the foregoing, there can be no assurance that other Owning Partnerships
that own multi-family properties will not default on their mortgages, file
bankruptcy petitions, and/or lose their properties through foreclosure.
The Company could be required to realize a loss if any such property is
considered impaired under applicable accounting rules, which loss would be
reduced by any deferred income recorded for the related note and any
reserve for said note previously established by the Company. Such losses,
if any, could adversely affect the Company's business, operating results
and financial condition.
Business Development Strategy
Senior management formed the first predecessor of the Company over 25
years ago and, in the aggregate, have over 80 years of experience in the
acquisition, financing, development and management of residential real
property. Prior to 1986, the Company acquired, developed, arranged for the
sale of interests in partnerships owning, and in most cases managed, multi-
family properties containing approximately 20,000 apartment units,
primarily in the Sun Belt and the Midwest. Beginning in 1986, the Company
has focused primarily on adult living communities. According to a study
conducted by the American Senior Housing Association, the Company currently
operates one of the largest portfolios of adult living communities in the
United States. The Company has become an experienced provider of both
independent and assisted-living services. The Company operates 32 adult
living communities containing 4,646 apartment units. The Company also
operates one nursing home and one residential apartment complex. The
Company believes that its experience in the acquisition, development and
management of adult living communities positions it to take advantage of
social and economic trends that are projected to increase demand for adult
living services. The Company's operating objective is to provide high-
quality, personalized living services to senior residents, primarily
persons over the age of 75.
The Company plans to continue to acquire existing adult living
communities, and currently plans to acquire between four to eight existing
communities over the next two years. The Company has recently acquired an
adult living community in Mesa, Arizona containing 166 apartment units and
has entered into contracts to acquire two adult living communities in
Sparks, Nevada containing 92 apartment units and 64 apartment units,
respectively. In addition, the Company has acquired two adult living
communities from existing Owning Partnerships, and may engage in other
similar transactions. The Company intends to continue to finance its
future acquisitions of adult living communities by utilizing mortgage
financing and by arranging for the sale of limited partnership interests in
new Investing Partnerships which will own interests in new Owning
Partnerships. It is anticipated that the Company will be the managing
general partner of the new Owning Partnerships that own adult living
communities acquired in the future.
The Company has instituted a development plan pursuant to which it
currently intends to commence construction on between 18 and 24 adult
living communities during the next two years containing between 2,556 and
3,408 apartment units. The Company plans to own or operate pursuant to
long-term leases or similar arrangements the adult living communities that
will be developed under the plan. The Company's development plan
contemplates its first new communities being built in Texas. The Company
has entered into an agreement with Capstone Capital Corporation
("Capstone") pursuant to which Capstone will provide up to $39 million for
development of up to four new adult living communities that will be
operated by the Company pursuant to long-term leases with Capstone. The
Company has closed the development financing with Capstone and has begun
construction on all four of these adult living communities which are
located in San Angelo, Wichita Falls, El Paso and Abilene, Texas. The
Company also has commenced construction, with mortgage financing from Bank
United of Texas ("Bank United"), for up to $7 million on an adult living
community in Corpus Christi, Texas, and for up to $7.3 million on an adult
living community in Temple, Texas. The Company also holds options to
acquire three additional sites in Texas and is actively negotiating with
several additional lenders to obtain financing to develop these sites. The
Company generally plans to concentrate on developing projects in only a
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<PAGE>
limited number of states at any given time. The Company believes that this
focus will allow it to realize certain efficiencies in the development and
management of communities.
The Company's development plan is based upon a "prototype" adult
living community that it has designed. The prototype incorporates
attributes of the various facilities managed by the Company, which it
believes appeal to the elderly. The prototype contains 142 apartment units
and will be located on sites of up to seven acres. The Company believes
that its development prototype is larger than most assisted-living
facilities, which typically range from 40 to 80 units. The Company
believes that the greater number of units will allow the Company to achieve
economies of scale in operations, resulting in lower operating costs per
unit, without sacrificing quality of service. Each such community will
offer residents a choice between independent-living and assisted-living
services. As a result, the market for each facility will be broader than
for facilities that offer only either independent-living or assisted-living
services. Due to licensing requirements and the expense and difficulty of
converting existing independent-living units to assisted-living units,
independent-living and assisted-living units generally are not
interchangeable. However, the Company's prototype is designed to allow, at
any time, for conversion of units, at minimum expense, for use as either
independent-living or assisted-living units. Each community therefore may
adjust its mix of independent-living and assisted-living units as the
market or existing residents demand. The Company believes that part of
the appeal of this type of community is that residents will be able to "age
in place" with the knowledge that they need not move to another facility if
they require assistance with "activities of daily living." The Company
believes that the ability to retain residents by offering them higher
levels of services will result in stable occupancy with enhanced revenue
streams. The Company believes that the common areas and amenities offered
by its prototype represent the state of the art for independent-living
facilities and are superior to those offered by smaller independent-living
facilities or by most assisted-living facilities. The Company believes
that this will make its prototype adult living communities attractive to
both independent-living residents who foresee their future need for
assisted-living services and residents who initially seek assisted-living
services.
The effectuation of the development plan will expose the Company to
additional risk. The Company anticipates that the construction of each
community will require at least 12 months and expects each newly
constructed community to incur start-up losses for at least nine months
after commencing operations. There can be no assurance that newly
constructed communities will generate positive cash flow. In addition,
there can be no assurance that the Company will not suffer delays or cost
overruns in instituting its development plan. The Company's development
plan has placed, and increasingly will place, a significant burden on the
Company's management and operating personnel. The Company's ability to
manage its growth effectively will require it to attract, train, motivate,
manage and retain key employees. Moreover, in implementing its growth
strategy, the Company expects to face competition in its efforts to develop
and acquire adult living communities. As a result of any of the foregoing
factors, the Company's business, operating results and financial condition
could be adversely affected.
The Company believes that management and marketing are critical to the
success of an adult living community. In order to attain high occupancy
rates at newly developed properties, the Company plans to continue its
marketing program which has resulted in an average occupancy rate at
January 24, 1997 at its existing adult living communities of approximately
91%. In addition, the Company plans to use the common facility design of
its prototype and its "The Grand Court"(R) trademarked name to promote
recognition of its properties nationally. The Company focuses exclusively
on "Private-pay" residents who pay for housing or related services out of
their own funds, rather than relying on the few states that have enacted
legislation which enables assisted-living facilities to receive Medicaid
funding similar to funding generally provided to skilled nursing
facilities. The Company believes this "Private-pay" focus will allow the
Company to increase rental revenues as demographic pressure increases
demand for adult living facilities and to avoid potential financial
difficulties it might encounter if it were dependent on Medicaid or other
reimbursement programs that may be scaled back as a result of health care
reform, budget deficit reduction or other pending or future state or
Federal government initiatives.
Grand Court Lifestyles, Inc. is a Delaware corporation formed in 1996
to consolidate substantially all of the assets of its predecessors, J&B
Management Company, Leisure Centers, Inc., and their affiliates. Unless
the context otherwise indicates, all references to the Company include
Grand Court Lifestyles Inc., its subsidiaries and predecessors. The
Company's principal executive offices are located at 2650 N. Military
Trail, Suite 350, Boca Raton, Florida 33431 and its telephone number is
(561) 997-0323.
4
<PAGE>
The following diagram illustrates the typical relationship among the
Company, the Owning Partnerships and the Investing Partnerships.
{Diagram illustrating the relationship among the Company, the
Owning Partnerships and the Investing Partnerships appears here. At the
top of the diagram is a box containing the name "Grand Court Lifestyles,
Inc." (the "Company box"). An arrow with the words "Manager of Adult
Living Community" is drawn to the left of the diagram from the Company box
to a box appearing at the bottom of the page entitled "Adult Living
Community" (the "Adult Living Community box". An arrow with the words
"Sale of a General Partnership Interest in Owning Partnership" is drawn
from the Company box to a box below it entitled "Investing Partnership"
(the "Investing Partnership box"). In return, an arrow with the words
"Cash, Purchase Note and Investor Notes as Consideration for Sale" is drawn
from the Investing Partnership box to the Company box. An arrow with the
words "Sale of Limited Partnership Interest" is drawn from the Investing
Partnership box to a box appearing to its left entitled "Limited Partners"
(the "Limited Partners box"). In return, an arrow with the words "Cash and
Investor Notes as Consideration for Sale" is drawn from the Limited
Partners box to the Investing Partnership box. An arrow with the words
"General Partner" is drawn from the Investing Partnership box to a box
below entitled "Owning Partnership" (the "Owing Partnership box"). An
arrow with the words "Owner of Adult Living Community" is drawn from the
Owning Partnership box to the Adult Living Community box appearing directly
below the Owning Partnership box. Arrows with the words "Directly or
Through A Wholly-Owned Subsidiary - General Partner" is drawn to the right
of the diagram from the Company box to the Investing Partnership box and
the Owning Partnership box.}
5
<PAGE>
THE OFFERING
Securities Offered(1) . . . 5,000,000 shares of Convertible Preferred
Stock and 2,600,000 shares of Common Stock
Common Stock to be sold by
the Company(1) . . . . . 2,100,000 shares
Common Stock to be sold by
Selling
Stockholders(1) . . . . . 500,000 shares
Convertible Preferred Stock
to be Sold
by the Company(1) . . . . 5,000,000 shares
Securities outstanding
before this
Offering . . . . . . . . 15,000,000 shares of Common Stock; no shares
of Convertible Preferred Stock
Securities to be outstanding
after this Offering(1)(2):
Prior to conversion of the
Convertible
Preferred Stock . . . . 17,100,000 shares of Common Stock;
5,000,000 shares of Convertible Preferred
Stock
Giving effect to full
conversion of the
Convertible Preferred
Stock . . . . . . . . . Approximately 21,266,666 shares of Common
Stock
Terms of Convertible
Preferred Stock:
Dividend Rate and
Payment Dates . . . . . Cumulative dividends on the Convertible
Preferred Stock are payable at the rate of
$ per share per annum, quarterly on the
last business day of January, April, July and
October of each year, commencing April 30,
1997, before any dividends are declared or
paid on the Common Stock or any capital
ranking junior to the Convertible Preferred
Stock. See "Dividend Policy" and
"Description of Capital Stock - Convertible
Preferred Stock."
Conversion Rights . . . . . Convertible into Common Stock at any time
prior to redemption at a conversion rate
determined by dividing $10.00 (the initial
offering price per share of Common Stock) by
$12.00 (120% of the initial offering price
per share of Common Stock), an effective
conversion rate of approximately 0.8333
shares of Common Stock for each share of
Convertible Preferred Stock. See
"Description of Capital Stock - Convertible
Preferred Stock."
Optional Cash Redemption . Redeemable, in whole or in part on a pro rata
basis, by the Company upon 30 days' prior
written notice (i) after March , 2000 at
$10.00 per share, plus accumulated and unpaid
dividends, provided that the closing bid
price of the Common Stock for at least 20
consecutive trading days ending not more than
10 trading days prior to the date of the
notice of redemption equals or exceeds $15.00
per share (150% of the initial public
offering price per share) or, (ii) after
March , 2001, at the cash redemption prices
6
<PAGE>
set forth herein, plus accumulated and unpaid
dividends. See "Description of Capital Stock
- Convertible Preferred Stock."
Voting Rights . . . . . . . The holders of Convertible Preferred Stock
have the right, voting as a class, to approve
or disapprove of the issuance of any class or
series of stock ranking senior to or on a
parity with the Convertible Preferred Stock
with respect to declaration and payment of
dividends or the distribution of assets on
liquidation, dissolution or winding-up. In
addition, if the Company fails to pay
dividends on the Convertible Preferred Stock
for four consecutive quarterly dividend
payment periods, holders of Convertible
Preferred Stock voting separately as a class
will be entitled to elect one director; such
voting right will be terminated as of the
next annual meeting of stockholders of the
Company following payment of all accrued
dividends. See "Description of Capital Stock
- Convertible Preferred Stock."
Liquidation Preference . . Upon liquidation, dissolution or winding up
of the Company, holders of Convertible
Preferred Stock are entitled to receive
liquidation distributions equivalent to
$10.00 per share (plus accumulated and unpaid
dividends) before any distribution to holders
of the Common Stock or any capital stock
ranking junior to the Convertible Preferred
Stock. See "Description of Capital Stock -
Convertible Preferred Stock."
Priority . . . . . . . . . The Convertible Preferred Stock will be
senior to and have priority over the Common
Stock with respect to the payment of
dividends and upon liquidation, dissolution
or winding-up of the Company.
Use of proceeds . . . . . . The Company intends to use all of the net
proceeds of the Offering to be received by it
to fund a portion of the costs of developing
adult living communities, except that the
Company intends to use approximately $3
million of such net proceeds for working
capital and general corporate purposes and
approximately $23 million to redeem
outstanding debt. See "Use of Proceeds."
_____________
(1) Excludes a maximum of 315,000 additional shares of Common Stock
to be sold by the Company, a maximum of 750,000 additional shares
of Convertible Preferred Stock to be sold by the Company and a
maximum of 75,000 additional shares of Common Stock to be sold by
the Selling Stockholders upon exercise of the Over-allotment
Option. See "Underwriting".
(2) Excludes 2,500,000 shares of Common Stock reserved for issuance
pursuant to the Company's stock option plans. As of the date
hereof, there were not any options granted under the Company's
stock option plans. See "Management - Stock Plans".
7
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data and other data)
The summary consolidated financial data have been taken or derived
from, and should be read in conjunction with, the Company's consolidated
financial statements and the related notes thereto, and the capitalization
data included elsewhere in this Prospectus. The results of operations for
an interim period have been prepared on the same basis as the year end
financial statements and, in the opinion of management, contain all
adjustments, consisting of only normally recurring adjustments, necessary
for a fair presentation of the results of operations for such period. The
results of operations for an interim period may not give a true indication
of results for the full year. See "Capitalization" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
YEARS ENDED JANUARY 31,
(AS RESTATED)(6)
-------------------------------------
1992 1993 1994 1995
---- ---- ---- ----
STATEMENT OF OPERATIONS DATA:
Revenues:
Sales . . . . . . . . . . . $ 23,088 $ 24,654 $ 29,461 $ 29,000
Deferred income earned . . 253 792 6,668 3,518
Interest income . . . . . . 25,584 13,209 13,315 9,503
Property management fees
from related parties . . 515 689 4,105 4,636
- - - -
Other income . . . . . . . -------- -------- -------- --------
49,440 39,344 53,549 46,657
-------- -------- -------- --------
Costs and expenses:
Cost of sales . . . . . . . 15,972 14,411 26,876 21,514
Selling . . . . . . . . . . 6,256 7,027 6,706 6,002
Interest . . . . . . . . . 14,021 11,874 10,991 13,610
General and administrative 5,836 5,617 5,226 6,450
Property Management Expense - - 45 238
Loss on Impairment of
Receivables . . . . . . . - - - -
Officers' Compensation(1) . 1,200 1,200 1,200 1,200
Depreciation and 412 975 1,433 2,290
amortization . . . . . . -------- -------- -------- --------
43,697 41,104 52,477 51,304
-------- -------- -------- --------
Income (loss) before provision
for income taxes . . . . . 5,743 (1,760) 1,072 (4,647)
- - - -
Provision for income taxes . -------- -------- -------- --------
Net income (loss) 5,743 (1,760) 1,072 (4,647)
Pro-forma income tax
provisions 2,297 (704) 429 (1,859)
(benefit)(2) . . . . . . . -------- -------- -------- --------
$ 3,446 $ (1,056) $ 643 $ (2,788)
Pro-forma net income (loss)(2) ======== ======== ======== ========
Pro-forma earnings (loss) per $ .23 $ (.07) $ .04 $ (.19)
common share(2) . . . . . . ======== ======== ======== ========
Pro-forma weighted average 15,000 15,000 15,000 15,000
common shares used . . . . ======== ======== ======== ========
Ratio of earnings to combined
fixed charges and preferred 1.40 - 1.09 -
stock dividends . . . . . . ======== ======== ======== ========
Deficiency in combined fixed
charges and preferred stock - 1,760 - 4,647
dividends . . . . . . . . . ======== ======== ======== ========
OTHER DATA:
Adult living communities 9 14 18 24
operated (end of period) ======== ======== ======== ========
Number of units (end of 1,639 2,336 2,834 3,683
period) . . . . . . . . . ======== ======== ======== ========
Average occupancy 83.3% 90.6% 90.4% 89.3%
percentage (3) . . . . . ======== ======== ======== ========
YEARS ENDED
JANUARY 31,
(AS NINE MONTHS ENDED
RESTATED)(6) OCTOBER 31,
------------ ------------------
1996 1995 1996
---- ---- ----
STATEMENT OF OPERATIONS DATA:
Revenues:
Sales . . . . . . . . . . . . . $ 41,407 $ 28,805 $ 27,208
Deferred income earned . . . . 9,140 6,855 -
Interest income . . . . . . . . 12,689 9,137 11,043
Property management fees from
related parties . . . . . . 4,735 3,593 2,670
1,013 943 -
Other income . . . . . . . . . -------- -------- --------
68,984 49,333 40,921
-------- -------- --------
Costs and expenses:
Cost of sales . . . . . . . . . 27,406 19,844 17,493
Selling . . . . . . . . . . . . 7,664 5,413 4,603
Interest . . . . . . . . . . . 15,808 11,636 12,017
General and administrative . . 7,871 5,419 5,687
Property Management Expense . . 604 320 2,791
Loss on Impairment of
Receivables . . . . . . . . . - - 18,442
Officers' Compensation(1) . . . 1,200 900 900
2,620 1,886 2,539
Depreciation and amortization . -------- -------- --------
63,173 45,418 64,472
-------- -------- --------
Income (loss) before provision for
income taxes . . . . . . . . . 5,811 3,915 (23,551)
- - -
Provision for income taxes . . . -------- -------- --------
Net income (loss) 5,811 3,915 (23,551)
Pro-forma income tax provisions 2,324 1,566 (2,093)
(benefit)(2) . . . . . . . . . -------- -------- --------
$ 3,487 $ 2,349 $(21,458)
Pro-forma net income (loss)(2) . ======== ======== ========
Pro-forma earnings (loss) per $ .23 $ .16 $ (1.43)
common share(2) . . . . . . . . ======== ======== ========
Pro-forma weighted average 15,000 15,000 15,000
common shares used . . . . . . ======== ======== ========
Ratio of earnings to combined
fixed charges and preferred 1.32 1.29 -
stock dividends . . . . . . . . ======== ======== ========
Deficiency in combined fixed
charges and preferred stock - - 23,776
dividends . . . . . . . . . . . ======== ======== ========
OTHER DATA:
Adult living communities 28 26 29(4)
operated (end of period) . . ======== ======== ========
Number of units (end of 4,164 3,920 4,119(4)
period) . . . . . . . . . . . ======== ======== ========
Average occupancy 94.7% 94.9% 92.3%
percentage (3) . . . . . . . ======== ======== ========
8
<PAGE>
AS OF JANUARY 31, (AS RESTATED)(6)
---------------------------------------
1992 1993 1994 1995
---- ---- ---- ----
BALANCE SHEET DATA:
Cash and cash equivalents . . $ 3,477 $ 6,455 $ 9,335 $ 10,950
Notes and receivables-net . . 230,760 234,115 227,411 220,014
Total assets . . . . . . . . 240,842 250,648 248,386 248,085
Total liabilities . . . . . . 191,234 203,990 211,647 217,879
Stockholders' equity . . . . 49,608 46,658 36,739 30,206
AS OF JANUARY 31, (AS AS OF
RESTATED)(6) OCTOBER 31, 1996
--------------------- ----------------
1996 ACTUAL ADJUSTED(5)
---- ------ -----------
BALANCE SHEET DATA:
Cash and cash equivalents . $ 17,961 $ 8,860 $ 47,845
Notes and receivables-net . 223,736 224,377 224,377
Total assets . . . . . . . 259,555 255,315 294,300
Total liabilities . . . . . 225,238 224,010 201,010
Stockholders' equity . . . 34,317 31,305 93,290
--------------------
(1) John Luciani and Bernard M. Rodin, the Chairman of the Board and
President, respectively, of the Company received dividends and
distributions from the Company's predecessors but did not receive
compensation. Officers' Compensation is based upon the aggregate
compensation currently received by such officers, $600,000 a year for
each such officer. Amounts received by such officers in excess of
such amount are treated as dividends for purposes of the Company's
financial statements. In the first nine months of fiscal 1996, such
officers also received $397,000 each as a dividend. See "Management."
(2) The Company's predecessors were Sub-chapter S corporations and a
partnership. The pro forma statement of operations data reflects
provisions for federal and state income taxes as if the Company had
been subject to federal and state income taxation as a C corporation
during each of the periods presented.
(3) Average occupancy percentages were determined by adding all of the
occupancy percentages of the individual communities and dividing that
number by the total number of communities. The average occupancy
percentage for each particular community was determined by dividing
the number of occupied apartment units in the particular community on
the given date by the total number of apartment units in the
particular community.
(4) Three adult living communities containing 527 units in the aggregate
were acquired by the Company after October 31, 1996.
(5) "Adjusted" amounts give effect to the application by the Company of
its net proceeds of this Offering (based upon an assumed initial
public offering price of $10.00 per share of Common Stock and $10.00
per share of Convertible Preferred Stock, after deducting underwriting
discounts and other offering expenses payable by the Company, and
excluding the Over-allotment Option). See "Capitalization."
(6) Subsequent to the issuance of the Company's fiscal 1995 Consolidated
Financial Statements, the Company discovered that a mathematical error
had occurred in the calculation of the Company's initial investment in
partnerships. As a result, the Company's Consolidated Financial
Statements have been restated from the amounts previously reported to
reflect the correction of this error.
9
<PAGE>
RISK FACTORS
Prospective purchasers of the Securities offered hereby should
consider carefully the factors set forth below, as well as other
information contained in this Prospectus, before making a decision to
purchase the Securities offered hereby.
RECENT NET LOSSES AND ANTICIPATED OPERATING LOSSES
The Company incurred net losses of approximately $1.8 million, $4.6
million and $23.6 million for the fiscal years ended January 31, 1993 and
1995 and the nine months ended October 31, 1996, respectively. As a result
of start-up losses anticipated to result from the implementation of the
Company's development plan for the construction of new adult living
communities, the Company anticipates that it will incur operating losses
for at least two years.
The Company began construction of the first of its new adult living
communities in November 1996. The Company anticipates that the
construction of each community will take at least 12 months and expects
each newly constructed community to incur start-up losses for at least nine
months after commencing operations. During the past ten years the
Company's revenues have been derived principally from arranging for the
sale of partnership interests to finance the acquisition of existing adult
living communities. Factors that have impacted earnings related to
existing adult living communities during a particular period have included
(i) the amount of partnership interests sold, (ii) the terms for the sale
of such partnership interests and (iii) the amount of deferred income
recognized. Competition to acquire existing adult living communities has
intensified, and the Company anticipates that, for at least the next two
years, it will not be able to arrange for the acquisition of such
communities on terms favorable enough to offset both the anticipated start-
up losses associated with newly developed communities and the costs and
cash requirements arising from the Company's existing and expected
additional overhead and debt and guaranty obligations. As a result the
Company expects to incur operating losses until, at least, its newly
constructed communities are completed, leased up and begin generating
positive cash flow. There can be no assurance that such newly constructed
communities will generate positive cash flow at any time, and the resulting
operating losses could have a material adverse effect on the Company's
business, operating results and financial condition. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Results of Operations" and "-Liquidity and Capital Resources" and "Business
- Partnership Offerings" and "- Strategy."
SUBSTANTIAL DEBT OBLIGATIONS OF THE COMPANY
At October 31, 1996 the Company had approximately $137.9 million
principal amount of debt, excluding accrued interest of $900,000 ("Total
Debt"), at an average interest rate of 11.90% per annum. Of the principal
amount of Total Debt, $9.4 million becomes due in the fiscal year ending
January 31, 1997; $22.9 million becomes due in the fiscal year ending
January 31, 1998; $32.8 million becomes due in the fiscal year ending
January 31, 1999; $17.6 million becomes due in the fiscal year ending
January 31, 2000; $18.8 million becomes due in the fiscal year ending
January 31, 2001, and the balance of $36.4 million becomes due thereafter.
Of the Total Debt, $77.9 million principal amount were debentures
("Debenture Debt") issued in eleven separate series, secured by notes owed
to the Company by partnerships formed to invest in multi-family housing
(the "Multi-family Notes"), investor notes and limited partnership
interests arising from offerings arranged by the Company in connection with
acquisitions of multi-family housing (the "Purchase Note Collateral"). The
Debenture Debt has an average interest rate of 11.95% per annum and has
maturities ranging from 1996 through 2004. During the fiscal year ended
January 31, 1996 and the nine months ending October 31, 1996, total
interest expense with respect to Debenture Debt was approximately $8.7
million and $7.0 million, respectively, the Purchase Note Collateral
produced approximately $2.0 million and $2.1 million of interest and
related payments to the Company, respectively, which was approximately $6.7
million and $4.9 million less than the amount required to pay interest on
the Debenture Debt, respectively. The Company paid the shortfall from cash
generated by its operations. Debenture Debt in the aggregate principal
amount of approximately $8.0 million, $2.1 million, $19.5 million,
$10.3 million and $15.1 million will mature in the respective fiscal years
1996 through 2000. There can be no assurance that amounts received with
respect to the Purchase Note Collateral will be sufficient to pay the
Company's future debt service obligations with respect to the Debenture
Debt. Fifty-one of the 169 Multi-family Notes have reached their final
maturity dates and, due to the inability, in view of the current cash flows
of the properties, to maximize the value of the underlying property at such
maturity dates, either through a sale or refinancing, these final maturity
dates have been extended by the Company. The Company expects that it may
need to extend maturities of other Multi-family Notes.
10
<PAGE>
Of the Company's Total Debt, an additional $31.2 million principal
amount was unsecured, having an average interest rate of 13.24% per annum
("Unsecured Debt") and an additional $5.0 million of such debt is mortgage
debt ("Mortgage Debt") with an average interest rate of 12% per annum. The
Company incurred the Mortgage Debt, which is secured by an adult living
community, in order to facilitate the acquisition financing for such
community. At October 31, 1996, the Company had approximately
$23.8 million principal amount of debt ("Investor Note Debt") secured by
promissory notes from investors in offerings of limited partnership
interests, which debt has an average interest rate of 10.51% per annum.
The average collection rate with respect to such investor notes in the last
5 years was in excess of 99% of the principal amount thereof that became
due and such collections have been sufficient to pay interest and principal
with respect to the Company's related Investor Note Debt. There can be no
assurance that future collections will continue at such rate. In the event
that future collections are not sufficient to pay interest and principal
with respect to the Company's related Investor Note Debt, the Company would
need to pay the shortfall from cash generated by its operations and, as a
result, the Company's business, operating results and financial condition
could be adversely affected. The Company intends to continue to incur
Investor Note Debt, utilizing as collateral investor notes generated by
future sales of limited partnership interests in Investing Partnerships
formed in connection with acquisitions of existing adult living
communities. The Company is in the process of issuing additional Unsecured
Debt in the amount of $15 million of which $7.7 million was issued as of
October 31, 1996 to refinance other indebtedness. Although the Company
currently does not anticipate incurring additional Debenture Debt or
Unsecured Debt, there can be no assurance that this will be the case. For
example, the Company may incur additional Debenture Debt or Unsecured Debt
as a means of refinancing its existing debt or for working capital
purposes. Neither the Company nor the Owning Partnerships have policies
limiting the amount or proportion of indebtedness incurred.
The Company's debt obligations contain various covenants and default
provisions, including provisions relating to, in some obligations, certain
Investing Partnerships, Owning Partnerships or affiliates of the Company.
Certain obligations contain provisions requiring the Company to maintain a
net worth of, in the most restrictive case, $30,000,000, except that, under
the Capstone agreements the Company will be required to maintain a net
worth in an amount no less than 75% of the net worth of the Company
immediately after the closing of this Offering. Certain obligations of the
Company contain covenants requiring the Company to maintain a debt for
borrowed money to consolidated net worth ratio of, in the most restrictive
case, no more than 5 to 1. At January 31, 1996 and at October 31, 1996,
the Company's debt for borrowed money to consolidated net worth ratio was
4.08 to 1 and 4.44 to 1, respectively. In addition, certain obligations of
the Company provide that an event of default will arise upon the occurrence
of a material adverse change in the financial condition of the Company.
POTENTIAL INCREASES IN DEBT SERVICE OBLIGATIONS RELATING TO VARIABLE RATE
DEBT
The Investor Note Debt, which totaled $23.8 million in aggregate
principal amount at October 31, 1996, bears interest at variable rates
determined by reference to the prime rate of the lending banks. Each 1%
increase or decrease of the interest rate on such debt would result in an
increase or decrease in the annual debt service obligation of the Company
of approximately $238,000. Therefore, increases in interest rates could
adversely affect the operating results and financial condition of the
Company.
GUARANTEED RETURN OBLIGATIONS, OPERATING CASH DEFICIENCIES OF OWNING
PARTNERSHIPS AND PREPAYMENT RIGHTS OF LIMITED PARTNERS
The Company has financed the acquisition of existing adult living
communities it operates by arranging for the private placement of limited
partnership interests in Investing Partnerships and intends to continue
this practice for future acquisitions of existing adult living communities.
The limited partners typically agree to pay their capital contributions
over a five-year period. Past offerings have provided, and it is
anticipated that future offerings will provide, that the limited partners
will receive guaranteed distributions during each of the first five years
of their investment equal to between 11% to 12% of their then paid-in
scheduled capital contributions. Pursuant to the management contracts with
the Owning Partnerships, for such five-year period, the Company is required
to pay to the Owning Partnerships, amounts sufficient to fund (i) any
operating cash deficiencies of such Owning Partnerships and (ii) any part
of such guaranteed return obligation not paid from cash flow from the
related property (which the Owning Partnerships distribute to the Investing
Partnerships for distribution to limited partners). During the fiscal year
ended January 31, 1996 and the nine months ended October 31, 1996, the
Company paid approximately $917,000 and $4.0 million, respectively, with
respect to guaranteed return obligations, and paid approximately $1.6
million and $1.6 million, respectively, with respect to operating cash
deficiencies. The increase in the amount the Company paid with respect to
guaranteed return obligations in the nine month period ended October 31,
1996 resulted from an increase in the amount of capital contributions from
11
<PAGE>
limited partners which were subject to guaranteed return obligations and an
increase in debt service payments due to the refinancing of a number of its
adult living communities, an acceleration of the maintenance and repairs of
various adult living communities, including certain adult living
communities which were not refinanced, and the establishment of capital
improvement reserves pursuant to the terms of the newly refinanced loans,
which reduced the cash flow and incentive management fees these properties
generate. The amount paid by the Company with respect to its guaranteed
return obligations for the nine months ending October 31, 1996 was offset
by an increase in interest income received by the Company during the nine
months ended October 31, 1996, which was also the result of such
refinancings. The refinancings resulted in the return of over $43 million
of capital to limited partners, which reduced the amount of capital upon
which the Company is obligated to make payments in respect of guaranteed
returns. The refinancings (which include the initial mortgage financing of
certain communities that were previously acquired without mortgage
financing) also resulted in increased debt service payments by the Owning
Partnerships which own the refinanced adult living communities. These debt
service payments reduced the cash flow available to pay the guaranteed
return to limited partners during the nine months ended October 31, 1996.
The decrease in available cash flow exceeded the reduction in the
guaranteed return obligations for the current year and, therefore,
increased the amount required to be paid by the Company with respect to
such guaranteed return obligations. The aggregate amount which the Company
will be required to pay with respect to guaranteed return obligations and
operating cash deficiencies will depend upon a number of factors,
including, among others, the expiration of such obligations for certain
partnerships, the cash flow generated by the properties the Company
currently operates, the terms of future offerings by Investing Partnerships
and the cash flow to be generated by the related properties. Based upon
its estimates of these factors, which estimates may vary materially from
actual results, the Company anticipates that for at least the next two
years, the aggregate guaranteed return obligations with respect to existing
and future Investing Partnerships will exceed the aggregate cash flow
generated by the related properties, which will result in the need to
utilize cash generated by the Company to meet guaranteed return
obligations. The aggregate amount of guaranteed return obligations for
each of the fiscal years 1996 through 2002 based on existing management
contracts is $12.4 million, $14.8 million, $13.7 million, $15.1 million,
$13.3 million, $7.4 million and $300,000, respectively. Such amounts of
guaranteed return obligation are calculated based upon paid-in capital
contributions of limited partners as of January 31, 1996 with respect to
fiscal 1996 and remaining scheduled capital contributions (as adjusted to
reflect the refinancings) with respect to fiscal years 1997 through 2002.
Actual amounts of guaranteed return obligations in respect of such
contracts will vary based upon the timing and amount of such capital
contributions. Furthermore, such amounts of guaranteed return obligations
are calculated without regard to the cash flow the related properties will
generate that can be used to meet such obligations.
To the extent that the Company must expend funds to meet its
guaranteed return obligations and operating cash deficiencies, the Company
will have fewer funds available to utilize for other business purposes,
including funds for application to its new development plan, to meet other
liquidity and capital resource commitments and for dividends. The Company
will attempt to structure future offerings by Investing Partnerships to
minimize the likelihood that it will be required to utilize the cash it
generates to pay guaranteed returns and operating cash deficiencies, but
there can be no assurance that this will be the case.
In the past, limited partners have been allowed to prepay capital
contributions. The amount of these prepayments received upon the closings
of the sales of limited partnership interests in Investing Partnerships, as
a percentage of total sales price, averaged 63.9% in fiscal 1993, 64.6% in
fiscal 1994, 52.6% in fiscal 1995 and 54.7% for the nine months ended
October 31, 1996. Prepayments of capital contributions do not result in
the prepayment of the related purchase notes. Instead, such amounts are
loaned to the Company by the Investing Partnership. As a result of such
loans and crediting provisions of the related purchase agreements, the
Company records the notes receivable corresponding to the purchase notes
net of such loans. Therefore, these prepayments act to reduce the recorded
value of the Company's note receivables and reduce interest income received
by the Company. Pursuant to the terms of offerings, the Company, as the
general partner of such Investing Partnership, has the option not to accept
future prepayments by limited partners of capital contributions. The
Company has not determined whether it will continue to accept prepayments
by limited partners of capital contributions. In addition, by financing
the acquisition of existing adult living communities through, and acting as
the general partner of, partnerships, the potential exists for claims by
limited partners for violations of the terms of the partnership or guaranty
agreements and of applicable federal and state securities and blue sky laws
and regulations.
The Company's obligations with respect to guaranteed returns and
operating cash deficiencies are contractual obligations of the Company to
make payments under the management contracts to the Owning Partnerships.
In general, the accrual of expenses arising from obligations of the
Company, including such obligations under the management contracts, reduces
the amount of earnings that might otherwise be available for distribution
to stockholders. Payments in respect of operating cash deficiencies are
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recorded as a cost of sales expense in the period such amounts are paid.
As described under "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Overview - Deferred Income Earned",
the Company has deferred income on sales of interests in Owning
Partnerships in respect of such guaranteed return obligations. As a result
of such deferrals, the revenues relating to sales are reduced and actual
payments of such guaranteed return obligations will generally not result in
the recognition of expense unless the underlying property's cash flows are
less than anticipated and, as a result thereof, the amount paid by the
Company in respect of the guaranteed return obligations is greater than the
amount assumed in establishing the amount of such deferred income. If the
underlying property's cash flow is greater than the amount utilized in
determining deferred income, the Company's earnings will be enhanced by the
recognition of deferred income earned and, to the extent cash flow exceeds
guaranteed returns, management fees. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Revenues," "-
Liquidity and Capital Resources" and "Business - Partnership Offerings."
PROPERTY ENCUMBERED WITH MORTGAGE FINANCING
The adult living communities currently operated by the Company are
generally encumbered with mortgage financing. While these mortgage loans
are obligations of the Owning Partnerships rather than direct obligations
of the Company, the Company typically provides a guaranty of certain
obligations under the mortgages including, for example, any costs incurred
for the correction of hazardous environmental conditions. As of October
31, 1996, the aggregate principal amount of the mortgage debt of the Owning
Partnerships was approximately $148.2 million and the aggregate annual debt
service obligations, excluding any balloon amounts payable at maturity, was
approximately $13.6 million. Most of this debt contains provisions which
limit the ability of the respective Owning Partnerships to further encumber
the property. Through January 31, 2001, approximately $125.3 million of
balloon payments under the mortgages will become due and payable. The
Company anticipates that the Owning Partnerships will make these balloon
payments by refinancing the mortgages on their respective properties. The
debt service payments on such mortgage debt reduces the cash flow available
for distribution by partnerships to limited partners who are typically
guaranteed an annual distribution of between 11% and 12% of their paid-in
capital during the first five years of any partnership, to the extent not
paid from cash flow from the related property. The Company anticipates
that it will continue to finance its future acquisitions of existing adult
living communities through mortgage financing and partnership offerings.
The Company intends to finance its development of new adult living
communities through mortgage financing and other types of financing,
including long-term operating leases arising through sale/leaseback
transactions. The financing of Company-developed communities will be
direct obligations of the Company and, accordingly, the amount of mortgage
indebtedness is expected to increase and the Company expects to have
substantial debt service and annual lease payment requirements in the
future as the Company pursues its growth strategy. As a result, a
substantial portion of the Company's cash flow will be devoted to debt
service and fixed lease payments. There can be no assurance that the
Company will generate sufficient cash flow from operations to pay its
interest and principal obligations on its mortgage debt or to make its
lease payments. In addition, the Company arranged for the sale of limited
partnership interests in two partnerships organized to make second mortgage
loans to the Company to fund approximately 20% of the costs of developing
three new adult living communities.
EXISTING DEFAULTS AND BANKRUPTCIES OF OWNING PARTNERSHIPS OWNING MULTI-
FAMILY PROPERTIES
The Company holds promissory notes ("Purchase Notes") from Investing
Partnerships which were formed to acquire controlling interests in Owning
Partnerships which own adult living properties ("Adult Living Notes") and
Purchase Notes from Investing Partnerships which were formed to acquire
controlling interests in Owning Partnerships which own multi-family
properties ("Multi-Family Notes"). As of October 31, 1996, the recorded
value, net of deferred income, of Multi-Family Notes was $106.5 million.
All but approximately $348,000 of the $52.6 million of "Other Partnership
Receivables" recorded on the Company's Consolidated Balance Sheet as of
October 31, 1996 relate to Multi-Family Notes. (See Note 4 to Consolidated
Financial Statements.) The Company holds 169 Multi-Family Notes which are
secured by controlling interests in 126 multi-family properties (the
"Multi-Family Properties"). As a result of the Company not being the sole
payee with regard to 28 of the 169 Multi-Family Notes, the values reflected
on the Company's Consolidated Financial Statements relate to only the
Company's proportionate interests in these 28 Multi-Family Notes, which is
typically a 50% interest. Due to the interests of third parties in these
28 Multi-Family Notes, the Company will not have sole discretion as to
certain actions taken with regard to said notes, as it would if it were the
only payee on the notes. The Company is not a partner in any of the Owning
Partnerships which own Multi-Family Properties or in any of the
corresponding Investing Partnerships.
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A number of the Multi-Family Properties are in default on their
respective mortgages. The Owning Partnerships that own these properties
have been negotiating with the respective mortgage lenders and, in some
cases, have obtained workout agreements pursuant to which the lenders
generally agree during the term of the agreement not to take any action
regarding the mortgage default and to accept reduced debt service payments
for a period of time, with the goal of increasing property cash flow to
enable the property to fully service its mortgage. Seven of these Owning
Partnerships have filed petitions seeking protection from foreclosure
actions under Chapter 11 of the U.S. Bankruptcy Code ("Chapter 11
Petitions") and the Company anticipates that in the near future two
additional Owning Partnerships will similarly seek such protection by
filing Chapter 11 Petitions (said nine Owning Partnerships are,
collectively, the "Protected Partnerships").
The Selling Stockholders and one of their affiliates have assigned
certain interests which they owned personally in various partnerships that
own multi-family properties (the "Assigned Interests") to the Investing
Partnerships that own interests in the Protected Partnerships, which
Assigned Interests provide additional assets at the Investing Partnership
level and, as a result, additional security for the related Multi-Family
Notes. Each of these Investing Partnerships has agreed to transfer the
specific Assigned Interest back to the Selling Stockholders and their
affiliate if the applicable Protected Partnership emerges from its
bankruptcy proceeding with possession of the real property and improvements
which it owned at the time of its Chapter 11 Petition.
The Company has recorded a loss of $18.4 million to reflect the
impairment of the Multi-Family Notes, for which the Assigned Interests
provide additional security, and the related "Other Partnership
Receivables." As a result of the transfers by the Selling Stockholders and
their affiliate of the Assigned Interests to the Investing Partnerships
which issued such Multi-Family Notes, the Company has recorded a
contribution to capital of $21.3 million and the recorded value of such
Multi-Family Notes and "Other Partnership Receivables" is unchanged. Due
to a re-evaluation by one of the Protected Partnerships of the value of its
real property and of the likelihood of successfully confirming a plan of
reorganization, said Protected Partnership has converted its bankruptcy
proceeding to a Chapter 7 liquidation proceeding. The Company, therefore,
does not anticipate a successful reorganization of such property, but
expects that this Multi-Family Note and the other Multi-Family Notes
relating to the Protected Partnerships will be collected due to the
additional collateral provided by the Assigned Interests.
There are 18 remaining Owning Partnerships which own Multi-Family
Properties that are in default of their mortgages. As of October 31, 1996,
the recorded value, net of deferred income, of the Multi-Family Notes and
"Other Partnership Receivables" relating to these 18 properties was $33.8
million. The Company has established reserves of $10.1 million to address
the possibility that these notes may not be collected in full. It is
possible that the 18 Owning Partnerships that own Multi-Family Properties
that are in default on their mortgages will file Chapter 11 Petitions or
take similar actions seeking protection from their creditors.
The Multi-Family Properties were typically built or acquired with the
assistance of programs administered by the United States Department of
Housing and Urban Development ("HUD") that provide mortgage insurance,
favorable financing terms and/or rental assistance payments to the owners.
As a condition to the receipt of assistance under these and other HUD
programs, the properties must comply with various HUD requirements,
including limiting rents on these properties to amounts approved by HUD.
Most of the rental assistance payment contracts relating to the Multi-
Family Properties will expire over the next few years. HUD has introduced
various initiatives to restructure its housing subsidy programs by
increasing reliance on prevailing market rents, and by reducing spending on
future rental assistance payment contracts by, among other things, not
renewing expiring contracts and by restructuring mortgage debt on those
properties where a decline in rental revenues is anticipated. Due to
uncertainty regarding the final policies that will result from these
initiatives and numerous other factors that affect each property which can
change over time (including the local real estate market, the provisions of
the mortgage debt encumbering the property, prevailing interest rates and
the general state of the economy) it is impossible for the Company to
determine whether these initiatives will have an impact on the Multi-Family
Properties and, if there is an impact, whether the impact will be positive
or negative.
In view of the foregoing, there can be no assurance that other Owning
Partnerships that own Multi-Family Properties will not default on their
mortgages, file Chapter 11 Petitions, and/or lose their properties through
foreclosure. Any such future mortgage defaults could, and, any such future
filings of Chapter 11 petitions or losses of any such property through
foreclosure would, cause the Company to realize a loss equal to the
recorded value of the applicable Multi-Family Note plus any related
advances, net of any deferred income recorded for such Multi-Family Note
and any reserves for such note previously established by the Company, which
would reduce such loss. In addition, the Company could be required to
realize such a loss even in the absence of mortgage defaults, Chapter 11
Petitions or the loss of any such property through foreclosure if, at any
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time in which the Company's financial statements are issued, such property
is considered impaired under applicable accounting rules. Such losses
could result in a default by the Company in its covenants under various
debt obligations to maintain a specified net worth or debt-to-net worth
ratio and could adversely affect the Company's business, operating results
and financial condition. See "Management's Discussion and Analysis of
Financial Condition and Results of Operation - Liquidity and Capital
Resources".
LIABILITIES ARISING FROM GENERAL PARTNER STATUS
The Company is a general partner of all but one of the Owning
Partnerships and the general partner of 26 of 37 Investing Partnerships.
The mortgage financing of the adult living communities and other properties
is without recourse to the general credit or assets of the Company except
with respect to certain specified obligations, including, for example,
costs incurred for the correction of hazardous environmental conditions.
However, except for such non-recourse obligations, as a general partner,
the Company is fully liable for all partnership obligations, including
those presently unknown or unobserved, and unknown or future environmental
liabilities. The cost of any such obligations or claims, if partially or
wholly borne by the Company, could adversely affect the Company's business,
operating results and financial condition.
DEVELOPMENT DELAYS AND COST OVERRUNS
The Company has instituted a development plan pursuant to which it has
commenced construction of six new adult living communities and intends to
commence construction of between 18 and 24 additional new adult living
communities during the next two years. There can be no assurance that the
Company will not suffer delays in its development program, which could
adversely affect the Company's growth. To date, the Company has not opened
any newly developed adult living communities. Development of adult living
communities can be delayed or precluded by various zoning, healthcare
licensing and other applicable governmental regulations and restrictions.
Real estate development projects generally are subject to various risks,
including permitting, licensing and construction delays, that may result in
construction cost overruns and longer periods of operating losses. The
Company intends to rely on third-party general contractors to construct new
communities. There can be no assurance that the Company will not
experience difficulties in working with general contractors and
subcontractors, any of which difficulties also could result in increased
construction costs and delays. Furthermore, project development is subject
to a number of contingencies over which the Company will have little
control and that may adversely affect project cost and completion time,
including inability to obtain construction financing, shortages of or the
inability to obtain labor or materials, the inability of the general
contractors or subcontractors to perform under their contracts, strikes,
adverse weather conditions, delays in property lease-ups and changes in
applicable laws or regulations or in the method of applying such laws and
regulations. If the Company's development schedule is delayed, the
Company's business, operating results and financial condition could be
adversely affected. See "Business - Strategy" and "- Operations."
DIFFICULTIES OF MANAGING RAPID EXPANSION
The Company will pursue an aggressive expansion program, and it
expects that its rate of growth will increase as it implements its
development program for new adult living communities. The Company's
success will depend in large part on identifying suitable development
opportunities, and its ability to pursue such opportunities, complete
development, and lease up and effectively operate its adult-living
communities. The Company's growth has placed a significant burden on the
Company's management and operating personnel. The Company's ability to
manage its growth effectively will require it to continue to attract,
train, motivate, manage and retain key employees. If the Company is unable
to manage its growth effectively, its business, operating results and
financial condition could be adversely affected. See "Business - Strategy"
and "Management - Directors and Executive Officers."
RIGHT OF PARTNERSHIPS TO TERMINATE MANAGEMENT CONTRACTS
All of the adult living communities, the nursing home and the
residential apartment complex operated by the Company are managed by the
Company pursuant to written management contracts, which generally have a
five year term coterminous with the Company's obligation under such
contracts to pay the Owning Partnerships amounts sufficient to fund any
part of guaranteed return obligations not paid from cash flow. The five-
year guaranteed return period has terminated for eight of the 37 Investing
Partnerships. After the initial five year term, the management contracts
are automatically renewed each year, but are cancelable on 30 to 60 days
notice at the election of either the Company or the Owning Partnership. In
general, under the terms of the Investing Partnership's partnership
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agreement, limited partners have only limited rights to take part in the
conduct, control or operation of the partnership. The Company is the
general partner of 31 of the 32 Owning Partnerships that own the adult
living communities, the nursing home and the residential apartment complex
operated by the Company. The Company is also the general partner of 26 of
the 37 Investing Partnerships formed to acquire 98.5% to 99% of the equity
interests in said Owning Partnerships. The termination of any management
contracts would result in the loss of fee income, if any, under those
contracts. See "- Conflicts of Interest" and "Business - Partnership
Offerings."
RIGHT TO REMOVE GENERAL PARTNER
The partnership agreements for the 26 Investing Partnerships where the
Company is the general partner provide that a majority in ownership
interests of the limited partners can remove the Company as the general
partner at any time. It is anticipated that all future Investing
Partnership agreements will contain the same right to remove the Company as
the general partner. The Investing Partnerships, acting through their
general partners, have various rights relating to matters affecting the
business and affairs of the Owning Partnerships. In addition, the
partnership agreements for two Owning Partnerships which are limited
partnerships and for which the Company is the managing general partner
provide that a majority in interest of the limited partners of the
Investing Partnership and the general partner of the Investing Partnership
can remove the Company as the managing general partner of the Owning
Partnership. The removal of the Company as the general partner of an
Investing Partnership or as the managing general partner of such an Owning
Partnership could have adverse effects on the business, operating results
and financial condition of the Company, especially if such removal occurs
during the five-year guaranteed return period for the respective Investing
Partnership. Such period has expired with respect to such Owning
Partnerships and such period has not expired with respect to any such
Investing Partnerships.
CONFLICTS OF INTEREST
Messrs. Luciani and Rodin, the Chairman of the Board and President of
the Company, respectively, and entities controlled by them serve as general
partners of partnerships directly and indirectly owning multi-family
properties. As a result of their general partner status, such persons have
personal liability for recourse partnership obligations and own small
equity ownership interests in the partnerships. The Company held notes,
aggregating $106.5 million, net of deferred income, at October 31, 1996
that were secured by the limited partnership interests in such
partnerships. These individuals have provided personal guarantees in
certain circumstances to obtain mortgage financing for certain adult living
communities operated by the Company and for certain of the Company's
Investor Note Debt, and the obligations thereunder may continue. In
addition, Messrs. Luciani and Rodin and certain employees will devote a
portion of their time to overseeing the third-party managers of multi-
family properties and one adult living community in which Messrs. Luciani
and Rodin have financial interests but the Company does not. Mr. Luciani
devotes approximately 20% of his time to such activities and Mr. Rodin
devotes approximately 5% of his time to such activities, although these
amounts can vary from year to year. These activities, ownership interests
and general partner interests create actual or potential conflicts of
interest on the part of these officers. See "Certain Transactions" and
Note 11 of Notes to the Company's Consolidated Financial Statements.
The Company is the managing general partner for 31 of the 32 Owning
Partnerships which own the 32 adult living communities, one nursing home
and the one residential apartment complex which the Company operates. The
general partner of the remaining partnership is Terrace Lion Corp., a
Missouri corporation whose sole officer, director and shareholder is
Maurice Barksdale, a consultant to the Company. The Company also is the
general partner for 26 of the 37 Investing Partnerships that own
partnership interests of 98.5% to 99% in these Owning Partnerships. In
addition, the Company is the managing agent for the 32 adult living
communities, one nursing home and one residential apartment complex that
the Company operates. The Company has financed the acquisition of adult
living communities through the sales of limited partnership interests in
the Investing Partnerships. By serving in all of these capacities, the
Company may have conflicts of interest in that it has both a duty to act in
the best interests of partners of various partnerships, including the
limited partners of the Investing Partnerships, and the desire to maximize
earnings for the Company's stockholders in the operation of such adult
living communities and other properties. See "Business - Partnership
Offerings" and Note 11 of Notes to the Company's Consolidated Financial
Statements.
The Company has acquired two adult living communities from existing
Owning Partnerships. The Company financed these acquisitions using
mortgage financing and by arranging for the sale of limited partnership
interests in new Investing Partnerships. The Company obtained the consent
to these transactions of the limited partners in the existing Investing
Partnerships that own interests in the Owning Partnerships from which the
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communities were acquired. The Company may engage in similar transactions
in the future. Potential conflicts of interest may exist because of the
Company's roles as general partner of each of the selling and acquiring
Owning Partnerships and of each of the acquiring Investing Partnerships
and, in some cases, the selling Investing Partnerships.
The Company also may have a conflict of interest in that certain of
the adult living communities operated by the Company may face direct
competition from other communities operated by the Company. Decisions made
by the Company to benefit one such community may not be beneficial to the
other, thus exposing the Company to a claim of a breach of fiduciary duty
by limited partners. See "Business - Communities."
DEPENDENCE ON SENIOR MANAGEMENT AND SKILLED PERSONNEL
The Company depends, and will continue to depend, on the service of
its principal executive officers. The loss of the services of one or more
of them could have a material adverse effect on the Company's operating
results and financial condition. Certain of the Company's officers or
entities controlled by them are general partners of partnerships that own
or invest in real property and they may be required to devote time to such
partnerships. The Company also depends on its ability to attract and
retain management personnel who will be responsible for the day-to-day
operations of each of its adult living communities. If the Company is
unable to hire qualified management to operate such communities, the
Company's business, operating results and financial condition could be
adversely affected. See "- Conflicts of Interest" and "Management."
COMPETITION
The long-term care industry is highly competitive, and the Company
believes that the assisted-living segment, in particular, will become even
more competitive in the future. The Company will be competing with
numerous other companies providing similar long-term care alternatives such
as home healthcare agencies, community-based service programs, adult living
communities and convalescent centers. The Company expects that, as the
provision of assisted-living services receives increased attention and the
number of states providing reimbursement for assisted-living rises,
competition will intensify as a result of new market entrants. The Company
also faces potential competition from skilled-nursing facilities that
provide long-term care services. Moreover, in implementing its growth
strategy, the Company expects to face competition in its efforts to develop
and acquire adult living communities. Some of the Company's present and
potential competitors are significantly larger and have, or may obtain,
greater financial resources than those of the Company. Consequently, there
can be no assurance that the Company will not encounter increased
competition in the future that could limit its ability to attract residents
or expand its business and therefore have a material adverse effect on its
business, operating results and financial condition. Moreover, if the
development of new adult living communities outpaces demand for those
facilities in certain markets, such markets may become saturated. Such an
oversupply of such communities could cause the Company to experience
decreased occupancy and depressed cash flows and operating results. See
"Business - Competition."
STAFFING AND LABOR COSTS
The Company competes with other providers of independent- and
assisted-living services with respect to attracting and retaining qualified
personnel. The Company also is dependent upon the available labor pool of
employees. A shortage of trained or other personnel may require the
Company to enhance its wage and benefits package in order to compete. No
assurance can be given that the Company's labor costs will not increase, or
that if they do increase, they can be matched by corresponding increases in
rental or management revenue. Any significant failure by the Company to
attract and retain qualified employees, to control its labor costs or to
match increases in its labor expenses with corresponding increases in
revenues could have a material adverse effect on the Company's business,
operating results and financial condition. See "Business - Employees."
DEPENDENCE ON ATTRACTING SENIORS WITH SUFFICIENT RESOURCES TO PAY
The Company currently, and for the foreseeable future, expects to rely
primarily on its residents' ability to pay the Company's fees from their
own or familial financial resources. Inflation or other circumstances that
adversely affect the ability of seniors to pay for the Company's services
could have an adverse effect on the Company. If the Company encounters
difficulty in attracting seniors with adequate resources to pay for its
services, its business, operating results and financial condition could be
adversely affected. See "Business - Operations."
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GOVERNMENT REGULATION
Healthcare is heavily regulated at the Federal, state and local levels
and represents an area of extensive and frequent regulatory change.
Currently no federal rules explicitly define or regulate independent- or
assisted-living communities. A number of legislative and regulatory
initiatives relating to long-term care are proposed or under study at both
the federal and state levels that, if enacted or adopted, could have an
adverse effect on the Company's business and operating results. The
Company cannot predict whether and to what extent any such legislative or
regulatory initiative will be enacted or adopted, and therefore cannot
assess what effect any current or future initiative would have on the
Company's business and operating results. Changes in applicable laws and
new interpretations of existing laws can significantly affect the Company's
operations, as well as its revenues and expenses. The Company's adult
living communities are subject to varying degrees of regulation and
licensing by local and state health and social service agencies and other
regulatory authorities specific to their location. While regulations and
licensing requirements often vary significantly from state to state, they
typically relate to fire safety, sanitation, staff training, staffing
levels and living accommodations such as room size, number of bathrooms and
ventilation, as well as regulatory requirements relating specifically to
certain of the Company's health-related services. The Company's success
will depend in part on its ability to satisfy such regulations and
requirements and to acquire and maintain any required licenses. Federal,
state and local governments occasionally conduct unannounced
investigations, audits and reviews to determine whether violations of
applicable rules and regulations exist. Devoting management and staff time
and legal resources to such investigations, as well as any material
violation by the Company that is discovered in any such investigation,
audit or review, could have a material adverse effect on the Company's
business and operating results. See "Business - Strategy" and "-
Governmental Regulation."
CONTROL BY CERTAIN STOCKHOLDERS
Each share of Common Stock is entitled to one vote on all matters
submitted to a vote of the holders of the Common Stock. After giving
effect to this Offering, John Luciani and Bernard M. Rodin will
collectively beneficially own shares of Common Stock representing
approximately 84.8% of the Company's Common Stock (approximately 68.2%
assuming conversion of all Convertible Preferred Stock). As a result, they
will maintain control over the election of a majority of the Company's
directors and, thus, over the operations and business of the Company as a
whole. In addition, such stockholders will have the ability to prevent
certain types of material transactions, including a change of control of
the Company. The control by John Luciani and Bernard M. Rodin over a
substantial majority of the Company's Common Stock may make the Company a
less attractive target for a takeover than it otherwise might be, or render
more difficult or discourage a merger proposal or a tender offer. See
"Principal and Selling Stockholders."
POSSIBLE ENVIRONMENTAL LIABILITIES
Under various federal, state and local environmental laws, ordinances
and regulations, a current or previous owner or operator of real property
may be held liable for the costs of removal or remediation of certain
hazardous or toxic substances, including, without limitation, asbestos-
containing materials, that could be located on, in or under such property.
Such laws and regulations often impose liability whether or not the owner
or operator knows of, or was responsible for, the presence of the hazardous
or toxic substances. The costs of any required remediation or removal of
these substances could be substantial and the liability of an owner or
operator as to any property is generally not limited under such laws and
regulations, and could exceed the property's value and the aggregate assets
of the owner or operator. The presence of these substances or failure to
remediate such substances properly may also adversely affect the owner's
ability to sell or rent the property, or to borrow using the property as
collateral. Under these laws and regulations, an owner, operator or any
entity who arranges for the disposal of hazardous or toxic substances, such
as asbestos-containing materials, at a disposal site may also be liable for
these costs, as well as certain other costs, including governmental fines
and injuries to persons or properties. As a result, the presence, with or
without the Company's knowledge, of hazardous or toxic substances at any
property held or operated by the Company could have an adverse effect on
the Company's business, operating results and financial condition. See
"Business - Government Regulation."
GENERAL REAL ESTATE RISKS
The performance of the Company's adult living communities is
influenced by factors affecting real estate investments, including the
general economic climate and local conditions, such as an oversupply of, or
a reduction in demand for, adult living communities. Other factors include
the attractiveness of properties to tenants, zoning, rent control,
18
<PAGE>
environmental quality regulations or other regulatory restrictions,
competition from other forms of housing and the ability of the Company to
provide adequate maintenance and insurance and to control operating costs,
including maintenance, insurance premiums and real estate taxes. Real
estate investments also are affected by such factors as applicable laws,
including tax laws, interest rates and the availability of financing. The
performance of the Company's adult living communities also may be adversely
affected by energy shortages and the costs attributable thereto, strikes
and other work stoppages by employees of the adult living communities,
damage to or destruction of the adult living communities, various
catastrophic or other uninsurable losses and defaults by a substantial
number of tenants under their leases. The potential for operating losses
and the risk of development delays and cost overruns have been previously
described. In addition, real estate investments are relatively illiquid
and, therefore, limit the ability of the Company to vary its portfolio
promptly in response to changes in economic or other conditions.
RESTRICTIONS IMPOSED BY LAWS BENEFITING DISABLED PERSONS
Under the Americans with Disabilities Act of 1990 (the "ADA"), all
places of public accommodation are required to meet certain federal
requirements related to access and use by disabled persons. A number of
additional Federal, state and local laws exist which also may require
modifications to existing and planned properties to create access to the
properties by disabled persons. While the Company believes that its
existing properties and its prototype for new development are substantially
in compliance with present requirements or are exempt therefrom, if
required changes involve a greater expenditure than anticipated or must be
made on a more accelerated basis than anticipated, additional costs would
be incurred by the Company. Further legislation may impose additional
burdens or restrictions with respect to access by disabled persons, the
costs of compliance with which could be substantial. See "Business -
Government Regulation."
LIABILITY AND INSURANCE
The Company's business entails an inherent risk of liability. In
recent years, participants in the long-term care industry have become
subject to an increasing number of lawsuits alleging malpractice or related
legal claims, many of which seek large amounts and result in significant
legal costs. The Company expects that from time to time it will be subject
to such suits as a result of the nature of its business. The Company
currently maintains insurance policies in amounts and with such coverage
and deductibles as it deems appropriate, based on the nature and risks of
its business, historical experience and industry standards. There can be
no assurance, however, that claims in excess of the Company's insurance
coverage or claims not covered by the Company's insurance coverage will not
arise. A successful claim against the Company not covered by, or in excess
of, the Company's insurance could have a material adverse effect on the
Company's operating results and financial condition. Claims against the
Company, regardless of their merit or eventual outcome, may also have a
material adverse effect on the Company's ability to attract residents or
expand its business and would require management to devote time to matters
unrelated to the operation of the Company's business. In addition, the
Company's insurance policies must be renewed annually, and there can be no
assurance that the Company will be able to obtain liability insurance
coverage in the future or, if available, that such coverage will be on
acceptable terms. See "Business - Legal Proceedings."
LIMITED UNDERWRITING HISTORY
The Representative has participated in only twelve public offerings as
an underwriter in the last five years. In evaluating an investment in the
Company, prospective investors in the Securities offered hereby should
consider the Representative's limited experience. See "Underwriting."
ABSENCE OF PUBLIC MARKET; POSSIBLE VOLATILITY OF MARKET PRICE OF SECURITIES
Prior to the Offering, there have been no public markets for
Securities and there can be no assurance that active trading markets will
develop or, if developed, be sustained after the Offering. The Common
Stock has been approved for quotation on the NASDAQ National Market,
subject to certain conditions. After completion of the Offering, the
market prices of the Securities could be subject to significant
fluctuations in response to various factors and events, including the
liquidity of the markets for the shares of Securities, market sales of
shares of Securities, the conversion of the Convertible Preferred Stock,
the exercise of the Representative's Warrants, variations in the Company's
operating results, new statutes or regulations or changes in the
interpretation of existing statutes or regulations affecting the healthcare
industry in general or the independent or assisted-living industry in
19
<PAGE>
particular. In addition, the stock market in recent years has experienced
broad price and volume fluctuations that often have been unrelated to the
operating performance of particular companies. These market fluctuations
also may adversely affect the market prices of the shares of Securities.
See "Shares Eligible for Future Sale" and "Underwriting."
NEGOTIATED OFFERING PRICE
The initial public offering prices of the Securities were determined
based upon negotiations between the Company and the Representative and do
not necessarily bear any relationship to the Company's assets, book value,
results of operations or any other generally accepted criteria. Among the
factors considered in determining the price were the history of, and the
prospects for, the Company and the industry in which it competes, its past
and present operations, its past and present earnings and the trend of such
earnings, the present state of the Company's development, the general
condition of the securities markets at the time of this offering and the
recent market prices of publicly traded securities of comparable companies.
There can be no assurance that the Securities can be resold at the initial
offering price, if at all. Purchasers of the Securities will be exposed to
a substantial risk of a decline in the market price of the Securities after
the Offering, if a market develops. See "Underwriting."
INADEQUATE DIVIDEND COVERAGE
The annual dividend requirement on the Convertible Preferred Stock is
$4,250,000 ($4,887,500 if the Over-allotment Option is exercised in full).
The Company anticipates that the future earnings of the Company, if any,
will not initially be adequate to pay the dividends on the Convertible
Preferred Stock out of earnings, and, although the Company has the right
and intends to pay quarterly dividends out of available surplus, there can
be no assurance that the Company will maintain sufficient surplus or that
future earnings, if any, will be adequate to pay the dividends on the
Convertible Preferred Stock. Under the Delaware General Corporation Law,
dividends may be paid only out of legally available funds, which includes
current and the prior fiscal year's net profits as well as surplus.
Failure to pay a total of four consecutive quarterly dividends will entitle
the holders of the Convertible Preferred Stock, voting separately as a
class, to elect one director. In addition, no dividends or distributions
may be declared, paid or made if the Company is or would be rendered
insolvent or in default under the terms of senior securities by virtue of
such dividend or distribution. See -"Recent Net Losses and Anticipated
Operating Losses", "Substantial Debt Obligations of the Company", "Dividend
Policy" and "Description of Capital Stock - Convertible Preferred Stock."
POLICY NOT TO PAY DIVIDENDS ON COMMON STOCK AND POTENTIAL LIMITATIONS ON
ABILITY TO PAY DIVIDENDS
The Company does not anticipate paying dividends on its Common Stock
subsequent to October 31, 1996. Furthermore, pursuant to terms governing
the Convertible Preferred Stock, the Company's Board of Directors may not
declare dividends payable to holders of Common Stock unless and until all
accrued cash dividends through the most recent past annual dividend payment
date have been paid in full to holders of the Convertible Preferred Stock.
Earnings of the Company, if any, not paid as dividends to holders of the
Convertible Preferred Stock are expected to be retained to finance the
expansion of the Company's business. The payment of dividends on its
Common Stock in the future will depend on the results of operations,
financial condition, capital expenditure plans and other cash obligations
of the Company and will be at the sole discretion of the Board of
Directors. In addition, certain provisions of future indebtedness of the
Company may prohibit or limit the Company's ability to pay dividends. See
"Dividend Policy" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources."
POSSIBLE ISSUANCE OF ADDITIONAL PREFERRED STOCK SENIOR TO THE CONVERTIBLE
PREFERRED STOCK
In addition to the Convertible Preferred Stock, the Company will have
approximately 9,250,000 shares of Preferred Stock authorized after the
designation of Convertible Preferred Stock which may be issued with
dividend, liquidation, voting and redemption rights senior to the
Convertible Preferred Stock; provided, however, that any such issuance of
senior preferred stock must be approved by the holders of a majority of the
outstanding shares of Convertible Preferred Stock. See "Description of
Capital Stock - Convertible Preferred Stock."
20
<PAGE>
ADVERSE EFFECT OF POSSIBLE REDEMPTION OF CONVERTIBLE PREFERRED STOCK
Commencing March , 2000 [the third anniversary of the date of the
Prospectus] and extending through March , 2001 [the fourth anniversary of
the date of the Prospectus], the Convertible Preferred Stock may be
redeemed by the Company in whole or in part, provided certain market
conditions are met. After March , 2001, the Convertible Preferred Stock
may be redeemed by the Company in whole or in part at any time at specified
premiums in excess of the initial public offering price of the Convertible
Preferred Stock. The Company may choose to redeem the Convertible
Preferred Stock rather than incur the cost of keeping a registration
statement current with the Securities and Exchange Commission (the
"Commission") for the shares of Common Stock underlying the Convertible
Preferred Stock. Redemption or automatic conversion of the Convertible
Preferred Stock could force the holders to convert the Convertible
Preferred Stock at a time when it may be disadvantageous for the holders to
do so, to sell the Convertible Preferred Stock at the then current market
price when they might otherwise wish to hold the Convertible Preferred
Stock for possible additional appreciation and receipt of dividends, or to
accept the redemption price, which is likely to be substantially less than
the market value of the Convertible Preferred Stock at the time of
redemption. See "Description of the Capital Stock - Convertible Preferred
Stock."
DISCRETIONARY USE OF PROCEEDS
The Company intends to use all of its net proceeds from the Offering
to finance the development of new adult living communities except for
approximately $3 million which the Company intends to use for working
capital and general corporate purposes and approximately $23 million for
the redemption of debt. However, delays or difficulties in project
development could cause the Company to use such net proceeds to acquire
existing adult living communities and for general corporate purposes. The
Company's management will, therefore, retain broad discretion in allocating
all of the net proceeds of the Offering. See "Use of Proceeds."
ANTI-TAKEOVER CONSIDERATIONS AND POTENTIAL ADVERSE EFFECT ON MARKET PRICE
OF SECURITIES FROM ISSUANCE OF PREFERRED STOCK
The Company's Board of Directors (the "Board of Directors") has the
authority to issue up to 8,750,000 additional shares of Preferred Stock,
par value $.0001 per share and to fix the rights and preferences of such
shares. Such issuance could occur without action by the holders of the
Common Stock and, in certain circumstances, without action of the holders
of the Convertible Preferred Stock. Such preferred stock could have voting
and conversion rights that adversely affect the voting power of the holders
of Convertible Preferred Stock and/or Common Stock, or could result in one
or more classes of outstanding securities that would have dividend,
liquidation or other rights superior to those of the Convertible Preferred
Stock and/or Common Stock. Issuance of such preferred stock may have an
adverse effect on the then prevailing market price of the Convertible
Preferred Stock and/or Common Stock. This authority, together with certain
provisions in the Company's Restated Certificate of Incorporation (the
"Certificate") and By-Laws (including provisions that limit stockholder
ability to call a stockholders meeting or to remove directors and require a
two-thirds vote of stockholders for amendment of certain provisions of the
Certificate or approval of certain business combinations), may delay, deter
or prevent a change in control of the Company, may discourage bids for the
Convertible Preferred Stock and/or Common Stock at a premium over the
market price of the Convertible Preferred Stock and/or Common Stock, and
may adversely affect the market price of, and the voting and other rights
of the holders of, Convertible Preferred Stock and/or the Common Stock.
Additionally, the Company is subject to the anti-takeover provisions of
Section 203 of the Delaware General Corporation Law, which prohibits the
Company from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction
in which the person became an interested stockholder, unless the business
combination is approved in a prescribed manner. Section 203 could have the
effect of delaying or preventing a change of control of the Company. See
"Description of Capital Stock."
IMMEDIATE AND SUBSTANTIAL DILUTION
The existing stockholders of the Company acquired their shares of
Common Stock at an average cost substantially below the assumed initial
public offering price set forth on the cover page of this Prospectus.
Therefore, purchasers of Common Stock in the Offering will experience
immediate and substantial dilution, which, assuming an initial public
21
<PAGE>
offering price of $10.00 per share, will be $7.64 per share. Additional
dilution may occur upon exercise of the Representative's Warrants and may
occur, in addition, if the Company issues additional equity securities in
the future, including issuances of Common Stock pursuant to the conversion
of the Convertible Preferred Stock. See "Dilution."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of shares of Common Stock in the public
market after the Offering or the perception that such sales could occur
could adversely affect the market price of the Securities and the Company's
ability to raise equity. Upon completion of the Offering, the Company will
have 17,100,000 shares of Common Stock outstanding (excluding the Over-
allotment Option and the exercise of the Representative's Warrants). Of
the shares of Common Stock outstanding after this Offering, all shares sold
in the Offering will be freely tradable without restriction or limitation
under the Securities Act of 1933, as amended (the "Securities Act"), except
for any shares purchased by "affiliates" of the Company, as such term is
defined in Rule 144 promulgated under the Securities Act. The remaining
shares of Common Stock are "restricted securities" within the meaning of
Rule 144. Such restricted securities may be sold subject to the
limitations of Rule 144. Furthermore, the Company intends to register
approximately 2,500,000 shares of Common Stock reserved for issuance
pursuant to the Company's stock option plans. However, the Company and the
Selling Stockholders have agreed that, except under limited circumstances,
they will not, directly or indirectly, offer, sell, transfer, pledge,
assign, hypothecate or otherwise encumber any shares of Common Stock or
securities convertible into Common Stock, whether or not owned, or dispose
of any interest therein under Rule 144 or otherwise for a period of 13
months following the date of this Prospectus without the prior written
consent of the Representative. In addition, the Representative holds the
Representative's Warrants which entitle it to purchase up to 260,000 shares
of the Company's Common Stock and 500,000 shares of Convertible Preferred
Stock at a price equal to 165% of the per share price to the public of the
Common Stock and Convertible Preferred Stock, respectively. The
Representative's Warrants are exercisable for a period of four years,
commencing one year after their issuance. The Company has agreed that,
under certain circumstances, it will use its best efforts to register the
Representative's Warrants and/or the underlying Common Stock for sale in
the public market. See "Shares Eligible for Future Sale."
USE OF PROCEEDS
The net proceeds to the Company from the Offering (excluding the Over-
allotment Option and the exercise of the Representative's Warrants), after
deducting estimated underwriting discounts and offering expenses payable by
the Company, are estimated to be approximately $62 million. The Company
intends to use all of its net proceeds to finance the development of new
adult living communities except for approximately $3 million which the
Company intends to use for working capital and general corporate purposes
and approximately $23 million which the Company intends to use to redeem
outstanding debt. However, delays or difficulties in project development
could cause the Company to use such net proceeds to acquire existing adult
living communities and for general corporate purposes. The Company
anticipates that most of the construction loans it obtains to finance the
development and lease-up costs of the new adult living communities will
fund between 75% to 80% of such costs, requiring the Company to contribute
20% to 25% of such costs. The Company arranged for the sale of limited
partnership interests in two partnerships organized to make second mortgage
loans to the Company to fund approximately 20% of the costs of developing
three new adult living communities. The Company will use its net proceeds
of the Offering (above the approximately $3 million to be used for working
capital and general corporate purposes and the approximately $23 million to
be used to redeem outstanding debt) plus funds generated by its operations
to fund the 20% to 25% of development costs not provided by construction
loans. While the specific series of debt to be redeemed have not been
specified, the Company anticipates that the debt to be so redeemed will be
selected from series of its Unsecured Debt, which have an average interest
rate of 15% and maturities ranging from March 31, 1997 to November 15,
2000. See "Risk Factors - Discretionary Use of Proceeds," "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources" and "Business - Strategy".
Pending the uses outlined above, funds will be placed into short term
investments such as governmental obligations, bank certificates of deposit,
banker's acceptances, repurchase agreements, short term debt obligations,
money market funds, and interest bearing accounts. The Company will not
receive any proceeds from the sale of any shares by the Selling
Stockholders.
22
<PAGE>
DIVIDEND POLICY
The Company does not anticipate paying dividends on its Common Stock
subsequent to October 31, 1996. Pursuant to the terms governing the
Convertible Preferred Stock, the Company's Board of Directors may not
declare dividends payable to holders of Common Stock unless and until all
accrued cash dividends through the most recent past quarterly payment date
have been paid in full to holders of the Convertible Preferred Stock.
Earnings of the Company, if any, not paid as dividends to holders of the
Convertible Preferred Stock are expected to be retained to finance the
expansion of the Company's business. The payment of dividends on its
Common Stock in the future will depend on the results of operations,
financial condition, capital expenditure plans and other cash obligations
of the Company and will be at the sole discretion of the Board of
Directors. In addition, certain provisions of proposed and future
indebtedness of the Company may prohibit or limit the Company's ability to
pay dividends. The Company anticipates that its future earnings, if any,
for at least the next two years will not be adequate for the payment of
dividends on the Convertible Preferred Stock out of earnings, in which
event such dividends will be paid out of the Company's then surplus (the
Company's net assets minus the aggregate par or stated value of the
outstanding shares of the Company's capital stock), if any. On a pro forma
basis, after giving effect to this Offering, the Company's surplus as of
October 31, 1996 was approximately $93 million. The payment of dividends
or any future operating losses will reduce such surplus, which may
adversely affect the Company's ability to continue to pay dividends on the
Convertible Preferred Stock. In addition, no dividends or distributions
may be declared, paid or made if the Company is or would be rendered
insolvent or in default under the terms of senior securities by virtue of
such dividend or distribution. During fiscal 1994, fiscal 1995 and the
nine months ended October 31, 1996, the Company and its predecessors paid
dividends and other distributions of $1,886,000, $1,700,000, and $794,000,
respectively, exclusive of amounts reflected as officers' compensation.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources" and "Certain
Transactions."
23
<PAGE>
CAPITALIZATION
The following table sets forth the actual consolidated capitalization
of the Company at October 31, 1996, and as adjusted to reflect (i) the sale
of the Securities by the Company in this Offering (excluding the Over-
allotment Option and the exercise of the Representative's Warrants) and
(ii) the application of the estimated net proceeds thereof, including the
application of approximately $23 million of such net proceeds to redeem
outstanding debt. The table should be read in conjunction with the
Company's Consolidated Financial Statements and the related notes thereto
included elsewhere in this Prospectus. See "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
AS OF OCTOBER 31, 1996
----------------------
ACTUAL AS ADJUSTED
------ -----------
(IN THOUSANDS)
--------------
Bank Debt . . . . . . . . . . . . . . . . . . . $ 33,008 $33,008
Other debt, principally debentures . . . . . . 105,840 82,840
Stockholders' equity:
Preferred Stock, $.0001 par value; 15,000,000
shares authorized; none issued and
outstanding; 5,000,000 shares issued and
outstanding as adjusted . . . . . . . . . . - .5
Common Stock, $.01 par value;
40,000,000 shares authorized; 15,000,000
shares issued and outstanding; 17,100,000
shares issued and outstanding as adjusted(1) 150 171
Accumulated deficit . . . . . . . . . . . . . (22,698) (22,698)
53,853 115,816.5
Additional paid-in capital (1) . . . . . . . -------- ----------
31,305 93,290
Total stockholders' equity . . . . . . . -------- ----------
$170,153 $209,138
Total capitalization . . . . . . . . . ======== ==========
(1) Does not include 2,500,000 shares reserved for issuance under the
Company's stock option plan.
24
<PAGE>
DILUTION
The net tangible book value of the Company's Common Stock at October
31, 1996 was approximately $21,958,000, or $1.46 per share of Common Stock.
Net tangible book value per share of Common Stock is determined by dividing
the number of outstanding shares of Common Stock into the net tangible
book value of the Company (total net assets of $31,305,000 less intangible
assets of $9,347,000). After giving effect to the sale of the Securities
offered hereby (based upon an assumed initial public offering price of
$10.00 per share of Common Stock, and after deduction of underwriting
discounts and estimated offering expenses payable by the Company), pro
forma net tangible book value of the Common Stock as of October 31, 1996
would have been $40,346,000 or $2.36 per share, representing an immediate
increase in pro forma net tangible book value of $.90 per share to existing
shareholders and an immediate dilution of $7.64 per share to new investors
purchasing Common Stock. The following table illustrates the immediate per
share dilution:
Assumed initial public offering
price per share . . . . . . . . . . . . . . . $10.00
Net tangible book value per share as of
October 31, 1996 . . . . . . . . . . . . . 1.46
Increase per share attributable to new .90
investors . . . . . . . . . . . . . . . . . ------
Pro forma net tangible book value per share 2.36
after offering . . . . . . . . . . . . . . . ------
Net tangible book value dilution per share to $ 7.64
new investors . . . . . . . . . . . . . . . . ------
In the event the Over-allotment Option is exercised in full, the net
tangible book value at October 31, 1996 would have been approximately
$43,207,000 and the dilution of net tangible book value per share to new
investors would have been approximately $7.52.
The following tables summarize, on a pro forma basis at October 31,
1996, the difference between the number of shares purchased from the
Company, total consideration paid and the average price paid per share by
existing stockholders (based upon Total Stockholders' Equity at October 31,
1996) and new investors after giving effect to the Offering:
SHARES PURCHASED
----------------
NUMBER PERCENT
------ -------
Selling Stockholders(1) . . . . 14,500,000 84.8
New investors(1) . . . . . . . 2,600,000 15.2
---------- ----
Total . . . . . . . . . . 17,100,000 100
========== ===
TOTAL CONSIDERATION PAID
------------------------
AVERAGE PRICE
AMOUNT PERCENT PER SHARE
------ ------- ------------
Selling Stockholders(1) $31,305,000 54.6 $2.16
New investors(1) . . . 26,000,000 45.4 $10.00
------------- ----
Total . . . . . . $57,305,000(2) 100
============= ===
(1) Upon completion of the Offering (excluding the Over-allotment
Option), the Selling Stockholders will own 14,500,000 shares of
Common Stock, and the new investors will own 2,600,000 shares of
Common Stock, representing 100% of the outstanding shares of
Common Stock.
(2) Does not include $50,000,000 paid by new investors for 5,000,000
shares of Convertible Preferred Stock. If all such shares of
Convertible Preferred Stock are subsequently converted into
Common Stock at an assumed conversion price of $12.00 per share,
the new investors would own an aggregate of approximately
6,766,666 shares of Common Stock or 31.8% of the aggregate number
of shares of Common Stock which would be then outstanding.
25
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data and other data)
The following selected consolidated financial data, except as
noted herein, have been taken or derived from the Company's consolidated
financial statements and should be read in conjunction with the
consolidated financial statements and the related notes thereto included
herein. The results of operations for an interim period have been prepared
on the same basis as the year end financial statements and, in the opinion
of management, contain all adjustments, consisting of only normally
recurring adjustments, necessary for a fair presentation of the results of
operations for such period. The results of operations for an interim
period may not give a true indication of results for the full year. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
YEARS ENDED JANUARY 31, (AS RESTATED)(5)
----------------------------------------
1992 1993 1994 1995
---- ---- ---- ----
STATEMENT OF OPERATIONS DATA:
Revenues:
Sales . . . . . . . . . . . . . $ 23,088 $ 24,654 $ 29,461 $ 29,000
Deferred income earned . . . . 253 792 6,668 3,518
Interest income . . . . . . . . 25,584 13,209 13,315 9,503
Property management fees
from related parties . . . . . 515 689 4,105 4,636
-- -- -- --
Other income . . . . . . . . . -------- -------- -------- --------
49,440 39,344 53,549 46,657
-------- -------- -------- --------
Costs and expenses:
Cost of sales . . . . . . . . . 15,972 14,411 26,876 21,514
Selling . . . . . . . . . . . . 6,256 7,027 6,706 6,002
Interest . . . . . . . . . . . 14,021 11,874 10,991 13,610
General and administrative . . 5,836 5,617 5,226 6,450
Property Management
Expense . . . . . . . . . . . -- -- 45 238
Loss on Impairment of
Receivables . . . . . . . . . -- -- -- --
Officers' Compensation(1) . . . 1,200 1,200 1,200 1,200
Depreciation and 412 975 1,433 2,290
amortization . . . . . . . . . -------- -------- -------- -------
43,697 41,104 52,477 51,304
-------- -------- -------- -------
Income (loss) before
provision for income taxes . . . 5,743 (1,760) 1,072 (4,647)
-- -- -- --
Provision for income taxes . . . -------- -------- -------- -------
Net income (loss) 5,743 (1,760) 1,072 (4,647)
Pro-forma income tax 2,297 (704) 429 (1,859)
provisions (benefit)(2) . . . . -------- -------- -------- --------
Pro-forma net income $ 3,446 $ (1,056) $ 643 $(2,788)
(loss)(2) . . . . . . . . . . . ======== ======== ======== ========
Pro-forma earnings (loss) $ .23 $ (.07) $ .04 $ (.19)
per common share(2) . . . . . . ======== ======== ======== ========
Pro-forma weighted average 15,000 15,000 15,000 15,000
common shares used . . . . . . . ======== ======== ======== ========
Ratio of earnings to fixed
charges and preferred stock 1.40 -- 1.09 --
dividends . . . . . . . . . . . ======== ======== ======== ========
Deficiency in combined fixed
charges and preferred stock -- 1,760 -- 4,647
dividends . . . . . . . . . . . ======== ======== ======== ========
Other Data:
Adult living communities 9 14 18 24
operated (end of period) . . ======== ======== ======== ========
Number of units (end of 1,639 2,336 2,834 3,683
period) . . . . . . . . . . . ======== ======== ======== ========
Average occupancy 83.3% 90.6% 90.4% 89.3%
percentage (3) . . . . . . . ======== ======== ======== ========
YEARS ENDED NINE
JANUARY 31, (AS MONTHS ENDED
RESTATED)(5) OCTOBER 31,
-------------- --------------
1996 1995 1996
---- ---- ----
STATEMENT OF OPERATIONS DATA:
Revenues:
Sales . . . . . . . . . . . . . . . . . $ 41,407 $ 28,805 $ 27,208
Deferred income earned . . . . . . . . 9,140 6,855 --
Interest income . . . . . . . . . . . . 12,689 9,137 11,043
Property management fees from
related parties . . . . . . . . . . . 4,735 3,593 2,670
1,013 943 --
Other income . . . . . . . . . . . . . -------- -------- --------
68,984 49,333 40,921
-------- -------- ---------
Costs and expenses:
Cost of sales . . . . . . . . . . . . . 27,406 19,844 17,493
Selling . . . . . . . . . . . . . . . . 7,664 5,413 4,603
Interest . . . . . . . . . . . . . . . 15,808 11,636 12,017
General and administrative . . . . . . 7,871 5,419 5,687
Property Management Expense . . . . . . 604 320 2,791
Loss on Impairment of
Receivables . . . . . . . . . . . . . -- -- 18,442
Officers' Compensation(1) . . . . . . . 1,200 900 900
2,620 1,886 2,539
Depreciation and amortization . . . . . -------- -------- --------
63,173 45,418 64,472
-------- -------- --------
Income (loss) before provision
for income taxes . . . . . . . . . . . 5,811 3,915 (23,551)
-- -- --
Provision for income taxes . . . . . . . -------- -------- --------
Net income (loss) 5,811 3,915 (23,551)
Pro-forma income tax 2,324 1,566 (2,093)
provisions (benefit)(2) . . . . . . . . -------- -------- --------
$ 3,487 $ 2,349 $ (21,458)
Pro-forma net income (loss)(2) . . . . . ======== ======== =========
Pro-forma earnings (loss) per $ .23 $ .16 $ (1.43)
common share(2) . . . . . . . . . . . . ======== ======== =========
Pro-forma weighted average 15,000 15,000 15,000
common shares used . . . . . . . . . . ======== ======== =========
Ratio of earnings to fixed charges 1.32 1.29 --
and preferred stock dividends . . . . . ======== ======== =========
Deficiency in combined fixed
charges and preferred stock -- -- (23,776)
dividends . . . . . . . . . . . . . . . ======== ======== =========
Other Data:
Adult living communities 28 26 29(4)
operated (end of period) . . . . . . ======== ======== =========
Number of units (end of 4,164 3,920 4,119(4)
period) . . . . . . . . . . . . . . . ======== ======== =========
Average occupancy 94.7% 94.9% 92.3%
percentage (3) . . . . . . . . . . . ======== ======== =========
26
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AS OF JANUARY 31, (AS RESTATED)(5)
-----------------------------------------
1992 1993 1994 1995
---- ---- ---- ----
BALANCE SHEET DATA:
Cash and cash equivalents . $ 3,477 $ 6,455 $ 9,335 $ 10,950
Notes and receivables-net . 230,760 234,115 227,411 220,014
Total assets . . . . . . . 240,842 250,648 248,386 248,085
Total liabilities . . . . . 191,234 203,990 211,647 217,879
Stockholders' equity . . . 49,608 46,658 36,739 30,206
AS OF
JANUARY 31, AS OF
(AS RESTATED) -----
(5) OCTOBER 31,
------------- -----------
1996 1996
---- ----
BALANCE SHEET DATA:
Cash and cash equivalents . $ 17,961 $ 8,860
Notes and receivables-net . 223,736 224,377
Total Assets . . . . . . . 259,555 255,315
Total Liabilities . . . . . 225,238 224,010
Stockholder's equity . . . 34,317 31,305
--------------------------
(1) John Luciani and Bernard M. Rodin, the Chairman of the Board and
President, respectively, of the Company received dividends and
distributions from the Company's predecessors but did not receive
compensation. Officers' Compensation is based upon the aggregate
compensation currently received by such officers, $600,000 a year
for each such officer. Amounts received by such officers in
excess of such amounts are treated as dividends for purposes of
the Company's financial statements. In the first nine months of
fiscal 1996, such officers also received $397,000 each as a
dividend. See "Management."
(2) The Company's predecessors were Sub-chapter S corporations and a
partnership. The pro forma statement of operations data reflects
provisions for federal and state income taxes as if the Company
had been subject to federal and state income taxation as a C
corporation during each of the periods presented.
(3) Average occupancy percentages were determined by adding all of
the occupancy percentages of the individual communities and
dividing that number by the total number of communities. The
average occupancy percentage for each particular community was
determined by dividing the number of occupied apartment units in
the particular community on the given date by the total number of
apartment units in the particular community.
(4) Three adult living communities containing 527 units in the
aggregate were acquired by the Company after October 31, 1996.
(5) Subsequent to the issuance of the Company's fiscal 1995
Consolidated Financial Statements, the Company discovered that a
mathematical error had occurred in the calculation of the
Company's initial investment in partnerships. As a result, the
Company's Consolidated Financial Statements have been restated
from the amounts previously reported to reflect the correction of
this error.
27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company is a fully integrated provider of adult living
accommodations and services which acquires, finances, develops and manages
adult living communities. The Company's revenues have been, and are
expected to continue to be, primarily derived from sales of partnership
interests in partnerships it organizes to finance the acquisition of
existing adult living communities. The Company manages such adult living
communities and, as a result, is one of the largest operators of adult
living communities in the United States, operating communities offering
both independent and assisted living services. The Company currently
operates 32 adult living communities containing 4,646 apartment units in 11
states in the Sun Belt and the Mid-West. The Company also operates one 57-
bed skilled nursing facility and one 237-unit residential apartment
complex. To the extent that the development plan described below is
successfully implemented, the Company anticipates that the percentage of
its revenues derived from sales of partnership interests would decrease and
that the percentage of revenues derived from newly constructed communities
would increase.
The Company was formed pursuant to the merger of various Sub-
Chapter S corporations which were wholly owned by the Selling Stockholders
and the transfer of certain assets by and assumption of certain liabilities
of (i) a partnership that was wholly owned by the Selling Stockholders and
(ii) the Selling Stockholders individually. In exchange for the transfer
of such stock and assets, the Selling Stockholders received shares of the
Company's Common Stock. These transactions are collectively called the
"reorganization". All of the assets and liabilities of the reorganization
were transferred at historical cost. The reorganization was effective as
of April 1, 1996. Prior to the reorganization, the various Sub-chapter S
corporations and the partnership, which were wholly-owned by the Selling
Stockholders were historically reported on a combined basis.
Historically, the Company has financed the acquisition and
development of multi-family and adult living communities by utilizing
mortgage financing and by arranging for the sale of limited partnership
interests. The Company is the general partner of all but one of the
partnerships that owns the adult living communities in the Company s
portfolio and the Company manages all of the adult living communities in
its portfolio. The Company has a participation in the cash flow, sale
proceeds and refinancing proceeds of the properties after certain priority
payments to the limited partners. The existing adult living communities
managed by the Company are not owned by the Company. Future revenues, if
any, of the Company relating to such communities would primarily arise in
the form of (i) deferred income earned on sales of interests in the Owning
Partnerships for such communities, (ii) management fees and (iii) amounts
payable by the Investing Partnerships to the Company in the event of the
subsequent sale or refinancing of such communities. The Company intends to
continue to finance its future acquisitions of existing adult living
communities by utilizing mortgage financing and by arranging for the sale
of partnership interests, and anticipates acquiring four to eight such
communities during the next two years. The Company has recently acquired
an adult living community in Mesa, Arizona containing 166 apartment units
and has entered into contracts to acquire two adult living communities in
Sparks, Nevada containing 92 apartment units and 64 apartment units,
respectively. In addition, the Company has acquired two adult living
communities from existing Owning Partnerships, and may engage in other
similar transactions.
The Company has adopted a development plan pursuant to which it
intends to commence construction of between 18 and 24 adult living
communities during the next two years containing between 2,556 and 3,408
apartment units. Construction on six new adult living communities has
already commenced. The Company plans to own or operate pursuant to long-
term leases or similar arrangements the adult living communities that will
be developed under the plan. The Company will use a portion of the
proceeds of this Offering, mortgage financing and long-term leases or
similar arrangements to finance the development, construction and initial
operating costs of these new adult living communities.
28
<PAGE>
The Company derives its revenues from sales of interests in adult
living real estate limited partnerships, recognition of deferred income
with respect to such partnerships, interest on notes received by the
Company from such partnerships as part of the purchase price for the sale
of interests, and property management fees received by the Company:
. Sales. Sales of interests in adult living real estate partnerships are
recognized when the profit on the transaction is determinable, that is, the
collectibility of the sales price is reasonably assured and the earnings
process is virtually complete. The Company determines the collectibility
of the sales price by evidence supporting the buyers' substantial initial
and continuing investment in the adult living communities as well as other
factors such as age, location and cash flow of the underlying property.
. Deferred Income Earned. The Company has deferred income on sales to
Investing Partnerships of interests in Owning Partnerships. The Company
has arranged for the private placement of limited partnership interests in
Investing Partnerships. Offerings of interests in Investing Partnerships
which were formed to acquire controlling interests in Owning Partnerships
which own adult living properties ("Adult Living Owning Partnerships")
provide that the limited partners will receive guaranteed distributions
during each of the first five years of their investment equal to between
11% to 12% of their then paid-in capital contributions. Pursuant to
management contracts with the Adult Living Owning Partnerships, for such
five-year period, the Company is required to pay to the Adult Living Owning
Partnerships, and the Adult Living Owning Partnerships distribute to the
Investing Partnership for distribution to limited partners, amounts
sufficient to fund any part of such guaranteed return not paid from cash
flow from the related property. The amount of deferred income for each
property is calculated at the beginning of each fiscal year in a multi-step
process. First, based on the property's cash flow in the previous fiscal
year, the probable cash flow for the property for the current fiscal year
is determined and that amount is initially assumed to be constant for each
remaining year of the guaranty period (the "Initial Cash Flow"). The
Initial Cash Flow is then compared to the guaranteed return obligation for
the property for each remaining year of the guaranty period. If the
Initial Cash Flow exceeds the guaranteed return obligation for any fiscal
year, the excess Initial Cash Flow is added to the assumed Initial Cash
Flow for the following fiscal year and this adjusted Initial Cash Flow is
then compared to the guaranteed return obligation for said following fiscal
year. If the Initial Cash Flow is less than the guaranteed return
obligation for any fiscal year, a deferred income liability is created in
an amount equal to such shortfall and no adjustment is made to the Initial
Cash Flow for the following year. As this process is performed for each
property every year, changes in a property's actual cash flow will result
in changes to the assumed Initial Cash Flow utilized in this process and
will result in increases or decreases to the deferred income liability for
the property. Any deferred income liability created in the year the
interest in the Owning Partnership is sold reduces revenues relating to the
sale. The payment of the guaranteed obligations, however, will generally
not result in the recognition of expense unless the property's actual cash
flow for the year is less than the Initial Cash Flow for the year, as
adjusted, and as a result thereof, the amount paid by the Company in
respect of the guaranteed return obligations is greater than the amount
assumed in establishing the deferred income liability (the amount of any
such excess being recognized as property management expense). If, however,
the property's actual cash flow is greater than the Initial Cash Flow for
the year, as adjusted, the Company's earnings will be enhanced by the
recognition of deferred income earned and, to the extent cash flow exceeds
guaranteed returns, management fees. The Company accounts for the sales of
controlling interests in Owning Partnerships which own multi-family
properties ("Multi-Family Owning Partnerships") under the installment
method. Under the installment method the gross profit is determined at the
time of sale. The revenue recorded in any given year would equal the cash
collections multiplied by the gross profit percentage. The Company has
deferred all future income to be recognized on these transactions. Losses
on these properties are recognized immediately upon sale. Sales of
controlling interests in Multi-Family Owning Partnerships account for 86%
of the Company's deferred income.
. Interest Income. The Company has note receivables from Investing
Partnerships which were formed to acquire interests in Owning Partnerships
which own adult living communities. Such notes generally have interest
rates ranging from 11% to 13.875% per annum and are due in installments
over five years from the date the Investing Partnership acquired its
interest in the Owning Partnership. The notes represent senior
29
<PAGE>
indebtedness of the related limited partnership and are collateralized by
Investing Partnership's interest in the Owning Partnership that owns the
related adult living community. These properties are generally encumbered
by mortgages. The mortgages generally bear interest at rates ranging from
8% to 9.5% per annum. The mortgages are generally collateralized by a
mortgage lien on the related adult living communities. Principal and
interest payments on each note are also collateralized by the investor
notes payable to the Investing Partnership to which the limited partners
are admitted.
The Company also has note receivables from Investing Partnerships
which were formed to acquire controlling interests in multi-family
properties. The notes have maturity dates ranging from ten to fifteen
years from the date the partnership interests were sold. Fifty-one of the
169 notes have reached their final maturity dates and, due to the
inability, in view of the current cash flows of the properties, to maximize
the value of the underlying property at such maturity dates, either through
a sale or refinancing, these final maturity dates have been extended by the
Company. The Company expects that it may need to extend maturities of
other Multi-family Notes. The notes represent senior indebtedness of the
related Investing Partnership and are collateralized by a 99% partnership
interest in the Owning Partnership that owns the related multi-family
property. These properties are encumbered by mortgages, which generally
bear interest at rates ranging from 7% to 12% per annum. The mortgages are
collateralized by a mortgage lien on the related multi-family property.
Interest payments on each note also are collateralized by the investor
notes.
. Management fees. Property management fees earned for services provided
to related parties are recognized as revenue when related services have
been performed.
. Existing Defaults and Bankruptcies of Owning Partnerships. As
described in "Liquidity and Capital Resources", a number of the Owning
Partnerships that own Multi-Family Properties are in default on their
mortgages and nine of them have filed, or are expected soon to file,
petitions seeking protection from foreclosure under Chapter 11 of the U.S.
Bankruptcy Code. It is possible that the other Owning Partnerships that
own Multi-Family Properties that are in default on their mortgages will
also file Chapter 11 Petitions. In addition, there can be no assurance
that other Owning Partnerships that own Multi-Family Properties will not
default on their mortgages, file Chapter 11 Petitions, and/or lose their
properties through foreclosure. Any such future mortgage defaults could,
and any such future filings of Chapter 11 Petitions or the loss of any such
property through foreclosure would, cause the Company to realize a loss of
up to the recorded value for such Multi-Family Note plus any related
advances, net of any deferred income recorded for such Multi-Family Note
and any reserve for said note previously established by the Company (which
would reduce such loss).
RESULTS OF OPERATION
. Revenues
Revenues for the three months ended October 31, 1996 were $12.6
million compared to $13.9 million for the three months ended October 31,
1995, a decrease of $1.3 million or 9.4%. Revenues for the nine months
ended October 31, 1996 were $40.9 million compared to $49.3 million for the
nine months ended October 31, 1995, a decrease of $8.4 million or 17.0%.
Revenues for the fiscal year ended January 31, 1996 ("Fiscal 1995") were
$69.0 million compared to $46.7 million for the year ending January 31,
1995 ("Fiscal 1994"), representing an increase of $22.3 million or 47.8%.
Revenues for Fiscal 1994 were $46.7 million compared to $53.5 million for
the year ended January 31, 1994 ("Fiscal 1993"), representing a decrease of
$6.8 million or 12.7%.
Sales for the three months ended October 31, 1996 were $8.4 million
compared to $8.8 million for the three months ended October 31, 1995, a
decrease of $400,000 or 4.5%. The decrease is attributable to slightly
less favorable terms when arranging for the sale of partnership interests
relating to 90.5% of one adult living community and 17% of a second adult
living community in the three months ended October 31, 1996 as compared to
the terms when arranging for the sale of partnership interests relating to
one adult living community in the three months ended October 31, 1995.
Sales for the nine months ended October 31, 1996 were $27.2 million
30
<PAGE>
compared to $28.8 million for the nine months ended October 31, 1995, a
decrease of $1.6 million or 5.6%. This decrease is attributable to
slightly less favorable terms on the sale of partnership interests relating
to 3 adult living communities in the nine months ended October 31, 1996 as
compared to the terms on the sale of partnership interests relating to 4
adult living communities in the nine months ended October 31, 1995. Sales
for Fiscal 1995 were $41.4 million compared to $29.0 million for Fiscal
1994, representing an increase of $12.4 million or 42.8%. The increase is
attributable to the sale of partnership interests relating to six adult
living communities in Fiscal 1995 compared to four in Fiscal 1994. Sales
for Fiscal 1994 were $29.0 million compared to $29.5 million for Fiscal
1993, representing a decrease of $500,000 or 1.7%. In both Fiscal 1994 and
1993, the Company arranged for the sale of partnership interests relating
to four adult living communities.
There was no deferred income earned in the three months ended October
31, 1996 compared to $2.3 million for the three months ended October 31,
1995, a decrease of $2.3 million or 100.0%. There was no deferred income
earned in the nine months ended October 31, 1996 compared to $6.9 million
for the nine months ended October 31, 1995, a decrease of $6.9 million or
100.0%. In that the Company's estimate of cash flows from its adult living
communities did not increase during the three months ended October 31, 1996
and the nine months ended October 31, 1996, the Company earned no deferred
income in these periods. In February and March 1996, the Company arranged
for the refinancing of existing mortgages on seven adult living communities
and initial mortgage financing on four adult living communities which had
previously been acquired on an all cash basis, which resulted in the return
of over $43.0 million of capital to limited partners and which reduced the
Company's obligations with respect to the guarantee of annual returns to
such limited partners. Because the refinancings were completed or
committed to before the completion of the Company's financial statements
for Fiscal 1995, the Company recognized the effect on deferred income with
respect to such refinanced properties in Fiscal 1995 rather than in the
nine months ended October 31, 1996. Deferred income earned increased to
$9.1 million in Fiscal 1995 from $3.5 million in Fiscal 1994, representing
an increase of $5.6 million or 160%. The increase in the recognition of
deferred income earned is primarily as a result of increased cash flows
from adult living communities and the refinancing of a number of adult
living communities in March 1996, as described above. Deferred income
earned in Fiscal 1994 was $3.5 million compared to $6.7 million for Fiscal
1993, representing a decrease of $3.2 million or 47.8%. This decrease is
principally due to the high amount of deferred income earned in Fiscal 1993
because of a significant increase in the cash flow of a number of adult
living communities in that year as compared to previous years, thus
allowing for the realization of a substantial amount of deferred income in
Fiscal 1993. While cash flow from adult living communities continued to
increase in Fiscal 1994, it did not increase at the same rate as in Fiscal
1993, resulting in the realization of less deferred income in Fiscal 1994
than in Fiscal 1993.
Interest income for the three months ended October 31, 1996 was $3.2
million compared to $2.1 million for the three months ended October 31,
1995, an increase of $1.1 million or 52.4%. This increase was due to the
increase in the three months ended October 31, 1996 in the cash flow
generated by various multi-family properties (and, in particular, the
proceeds from the refinancing of one multi-family property) which the
Company receives as interest income on the related Purchase Notes, as
compared to such cash flow generated in the three months ended October 31,
1995. This increase was partially offset by a reduction of interest income
due to the prepayment of mortgages held by the Company and a reduction in
scheduled interest payments resulting from the refinancings of a number of
adult living communities, as discussed below. Interest income for the nine
months ended October 31, 1996 was $11.0 million compared to $9.1 million
for the nine months ended October 31, 1995, an increase of $1.9 million or
20.9%. The refinancing of a number of adult living communities in February
and March 1996 resulted in the return of over $43.0 million of capital to
limited partners, thereby accelerating the receipt of scheduled interest
payments received by the Company in the three months ending April 30, 1996.
This accelerated receipt of scheduled interest payments in the three months
ended April 30, 1996 caused interest income for the nine months ended
October 31, 1996 to be greater than interest income for the nine months
ended October 31, 1995, but was partially offset by (a) a reduction of the
scheduled interest payments and (b) a reduction of interest income due to
the prepayment of mortgages held by the Company, which resulted from the
refinancings. In addition, this increase in interest income was partially
offset by a decrease in the nine months ended October 31, 1996 of the cash
flow generated by various multi-family properties, which the Company
receives as interest income, as compared to such cash flows generated in
the nine months ended October 31, 1995. Interest income for Fiscal 1995
31
<PAGE>
was $12.7 million compared to $9.5 million for Fiscal 1994, representing an
increase of $3.2 million or 33.7%. Such increase reflects the increased
aggregate interest received on notes from limited partnerships as a result
of an increase in the aggregate principal amount of such notes. The
increase in aggregate principal amount reflects an increase in the number
of existing adult living communities operated by the Company and in the
number of offerings in connection with acquisitions of adult living
communities to six in Fiscal 1995, compared to four in Fiscal 1994. The
increase in interest income in Fiscal 1995 also reflects an interest
payment realized in connection with a mortgage debt restructuring for a
Multi-Family Property. Interest income for Fiscal 1994 was $9.5 million
compared to $13.3 million for Fiscal 1993, representing a decrease of $3.8
million or 28.6%. This decrease was primarily attributable to the
continuing decline in the amounts receivable and collected of investor
notes relating to offerings in connection with acquisitions of Multi-Family
Properties (which decline reflects the Company's discontinuance of multi-
family property acquisitions and offerings after 1986), which investor note
collections were applied as interest payments under their respective
limited partnership notes payable to the Company. The revenues of the
Company in the periods covered in the Consolidated Financial Statements
reflect little or no cash flow throughout such periods (which the Company
would receive as interest income on Multi-Family Notes) from those Multi-
Family Properties with respect to which there are existing mortgage
defaults.
Property management fees from related parties for the three months
ended October 31, 1996 were $1.1 million compared to $700,000 for the three
months ended October 31, 1995, an increase of $400,000 or 57.1%. The
increase is primarily attributable to increased incentive management fees
generated by an adult living community the Company acquired from an
existing Owning Partnership. Property management fees from related parties
for the nine months ended October 31, 1996 were 2.7 million compared to
$3.6 million for the nine months ended October 31, 1995, a decrease of
$900,000 or 25.0%. This decrease is primarily due to (i) an acceleration
of the maintenance and repairs to various adult living communities, which
reduced cash flow and the incentive management fees the properties
generated, (ii) the increased debt service on various adult living
communities due to the refinancing of such properties (which include the
initial mortgage financing of certain properties that had been previously
acquired without mortgage financing) in March 1996, which reduced the cash
flow produced by such properties and the incentive management fees these
properties generate to a greater extent than the reduction of the Company's
guaranteed return obligation due to said refinancing, and (iii) the
establishment of capital improvement reserves pursuant to the terms of the
newly refinanced loans, which reserves reduce the cash flow and incentive
management fees these properties generate. Property management fees from
related parties were $4.7 million in Fiscal 1995 compared to $4.6 million
in Fiscal 1994, representing an increase of $100,000 or 2.2%. The increase
is primarily due to an increase of additional properties under management
during the period, as partially offset by a decrease in incentive
management fees received by the Company due to the Company's guarantee
obligations increasing at a rate faster than the rate of increase of the
cash flow generated by the respective adult living communities. Property
management fees from related parties increased to $4.6 million in Fiscal
1994 compared to $4.1 million in Fiscal 1993, representing an increase of
$500,000 or 12.2%. The increase is attributable to additional properties
under management during the period.
There was no other income for the three months ended October 31, 1996
or the three months ended October 31, 1995. There was no other income for
the nine months ended October 31, 1996 as compared to $1.0 million for the
nine months ended October 31, 1995, a decrease of $1.0 million or 100.0%.
The decreases are due to the non-recurring nature of the other income
recognized in the three months and nine months ended October 31, 1995,
which resulted from the restructuring and reduction of a development fee
obligation of the Company. Other income increased to $1.0 million in
Fiscal 1995 from no other income earned in Fiscal 1994, representing an
increase of $1.0 million. The increase is due to the restructuring and
reduction of said development fee obligation of the Company. There was no
other income in Fiscal 1994 or Fiscal 1993.
. Cost of Sales
Cost of sales, which include the cash portion of the purchase price
for properties plus related transaction costs, expenses and any payments by
the Company in respect of operating cash deficiencies of Owning
32
<PAGE>
Partnerships and any deferred income liabilities that are established
during the applicable period, for the three months ended October 31, 1996
were $8.2 million compared to $5.0 million for the three months ended
October 31, 1995, an increase of $3.2 million or 64.0%. The increase is
primarily due to the establishment in the three months ended October 31,
1996 of a deferred income liability relating to the acquisitions occurring
in said period and in the first three months of Fiscal 1996, which
increased the cost of sales, as compared to the three months ended October
31, 1995, where no such liability was established. Cost of sales as a
percent of sales increased from 56.6% for the three months ended October
31, 1995 to 97.6% for the three months ended October 31, 1996. The
increase can be attributed to the establishment in the three months ended
October 31, 1996 of a deferred income liability relating to the
acquisitions occurring in said period and in the first three months of
Fiscal 1996, which increased the cost of sales, as compared to the three
months ended October 31, 1995, where no such liability was established.
Cost of sales for the nine months ended October 31, 1996 were $17.5 million
compared to $19.8 million for the nine months ended October 31, 1995, a
decrease of $2.3 million or 11.6%. The decrease is primarily due to the
establishment in the nine months ended October 31, 1995 of greater deferred
income liabilities relating to the acquisitions occurring in said period,
which increased the cost of sales, as compared to the nine months ended
October 31, 1996, where lesser deferred income liabilities were
established, and is also due to the Company's ability to acquire properties
on more favorable terms and to obtain more favorable mortgage financings
for its acquisitions (i.e. - higher loan-to-value ratios and preferred
interest rates). Cost of sales as a percent of sales decreased from 68.8%
for the nine months ended October 31, 1995 to 64.3% for the nine months
ended October 31, 1996. The decrease is primarily due to the establishment
in the nine months ended October 31, 1995 of greater deferred income
liabilities referred to above. Cost of sales for Fiscal 1995 was $27.4
million compared to $21.5 million in Fiscal 1994, representing an increase
of $5.9 million or 27.4%. The increase can be primarily attributed to the
acquisition by the Company of six properties in Fiscal 1995 with combined
purchase prices of $35 million as compared to the acquisition of four
properties in Fiscal 1994 with combined purchase prices of $22.3 million.
The increase in the aggregate purchase price of properties acquired was
partially offset by an increased use of mortgage financing for acquisitions
in Fiscal 1995 from levels of mortgage financing for Fiscal 1994, which
reduced cash expenditures by the Company for such acquisitions. Cost of
sales as a percent of sales decreased from 74.1% in Fiscal 1994 to 66.2% in
Fiscal 1995. The decrease can be attributed principally to the Company's
ability to obtain more favorable mortgage financing for its acquisitions
(i.e. - higher loan-to-value ratios and preferred interest rates), which
has contributed to the decrease in the cost of sales, and has enabled the
Company to also obtain more favorable terms when arranging for the sale of
partnership interests, which has contributed to the increase in sales, thus
creating larger gross margins. Cost of sales for Fiscal 1994 were $21.5
million compared to $26.9 million for Fiscal 1993, a decrease of $5.4
million or 20.1%. This decrease was due primarily to the use of mortgage
financing for property acquisitions in Fiscal 1994, which reduced cash
expenditures by the Company for property acquisitions from such
expenditures for Fiscal 1993 where no such mortgage financing was used.
Cost of sales as a percent of sales decreased from 91.2% in Fiscal 1993 to
74.1% in Fiscal 1994. This decrease is principally due to the use of
mortgage financing for property acquisitions in Fiscal 1994, which reduced
cash expenditures by the Company for property acquisitions from such
expenditures for Fiscal 1993, in which mortgage financing was not used.
Several factors, including the collapse of the real estate market in
the late 1980's and early 1990's, which resulted in a number of distressed
property sales and limited competition from other prospective purchasers,
allowed the Company to acquire existing adult living communities at such
time on relatively favorable terms. Mortgage financing, however, was
generally either not available or available only on relatively unattractive
terms during this period, which made acquisitions more difficult because
they either required large outlays of cash or the use of mortgage financing
on relatively unfavorable terms. During the last several years, several
factors have contributed towards a trend to less favorable terms for
acquisitions of adult living communities, including a recovery in the
market for adult living communities and increased competition from other
prospective purchasers of adult living communities. The Company, however,
has been able to obtain mortgage financing on increasingly favorable terms
(i.e. - the Company has obtained mortgages for a greater percentage of the
purchase price and at preferred rates). These factors, combined with an
overall reduction of interest rates, have partially offset the factors that
have led to more unfavorable acquisition terms. A significant change in
these or other factors (including, in particular, a significant rise in
interest rates) could prevent the Company from acquiring communities on
terms favorable enough to offset the start-up losses of newly-developed
communities as well as the Company's debt service obligations, guaranty
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obligations, operating cash deficiencies and the Company's selling, general
and administrative expenses. Although the Company has been able to acquire
adult living communities on more favorable terms in the nine months ended
October 31, 1996, there can be no assurance that this recent trend towards
improving acquisition terms will continue. Although the Company does not
expect that this trend towards improving acquisition terms will continue,
if it does continue, the Company may increase the number of existing adult
living communities it acquires and decrease the number it develops in that
the continuation of this trend would eventually result in it being more
affordable to buy existing communities than to build new ones.
. Selling Expenses
Selling expenses for the three months ended October 31, 1996 were
$1.1 million compared to $1.6 million for the three months ended October
31, 1995, a decrease of $500,000 or 31.3%. The decrease is attributable to
lower commissions and related selling costs in connection with the sale of
limited partnership interests in connection with 90.5% of one adult living
community and 17% of another adult living community in the three months
ended October 31, 1996 compared to the sale of limited partnership
interests in connection with one adult living community in the three months
ended October 31, 1995. Selling expenses for the nine months ended October
31, 1996 were $4.6 million compared to $5.4 million for the nine months
ended October 31, 1995, a decrease of $800,000 or 14.8%. The decrease was
attributable to the lower sales volume, and the resulting lower commissions
and related selling costs in connection with, limited partnership interests
in partnerships that acquired 3 adult living communities and 90.5% of a
fourth in the nine months ended October 31, 1996 compared to limited
partnership interests in partnerships that acquired 4 adult living
communities in the nine months ended October 31, 1995. Selling expenses
for Fiscal 1995 were $7.7 million compared to $6.0 million in Fiscal 1994,
representing an increase of $1.7 million or 28.3%. The increase was
attributable to additional commissions paid for assistance in the sale of
limited partnership interests and related selling costs in connection with
the sale of limited partnership interests in partnerships that acquired six
adult living communities in Fiscal 1995 for $41.4 million compared to the
sale of limited partnership interests in partnerships that acquired four
adult living communities in Fiscal 1994 for $29.0 million. Selling expenses
for Fiscal 1994 were $6.0 million compared to $6.7 million in Fiscal 1993,
representing a decrease of $700,000 or 10.4%. This decrease is due
primarily to reductions in the rate of commissions paid for assistance in
the sale of limited partnership interests.
. Interest Expense
Interest expense for the three months ending October 31, 1996 was
$4.2 million compared to $3.7 million for the three months ended October
31, 1995, an increase of $500,000 or 13.5%. Interest expense for the nine
months ended October 31, 1996 was $12.0 million as compared to $11.6
million for the nine months ended October 31, 1995 an increase of $400,000
or 3.4%. The increases can be primarily attributed to increases in debt
and related interest rates on such debt during the period as partially
offset by decreases in debt due to the refinancing of two adult living
communities in March 1996. Until the refinancings, the mortgages on the
communities were direct obligations of the Company and the corresponding
interest payments were included in the Company's interest expense. These
mortgages are now direct obligations of the Owning Partnerships that own
these properties and the corresponding interest payments are no longer
included in interest expense. Interest expense for Fiscal 1995 was $15.8
million compared to $13.6 million for Fiscal 1994, representing an increase
of $2.2 million or 16.2%. Interest Expense included interest payments on
Debenture Debt which had an average interest rate of 11.95% per annum and
was secured by the Purchase Note Collateral. During Fiscal 1995, total
interest expense with respect to Debenture Debt was approximately $8.7
million and the Purchase Note Collateral produced approximately $2.0
million of interest and related payments to the Company, which was $6.7
million less than the amount required to pay interest on the Debenture
Debt. Interest expense for Fiscal 1994 was $13.6 million compared to $11.0
million for Fiscal 1993, an increase of $2.6 million or 23.6%. The
increases can be attributed to increases in debt during the periods and was
somewhat offset by reductions in interest rates during the periods. See
"Liquidity and Capital Resources."
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. General and Administrative Expenses
General and administrative expenses were $2.0 million for the three
months ended October 31, 1996 as compared to $2.1 million for the three
months ended October 31, 1995, a decrease of $100,000 or 4.8%. The
decrease is due to the capitalization of expenses relating to the
implementation of the Company's development program, which became
significant in the current fiscal year, as partially offset by increases in
professional fees and salary costs associated with the new development
program. General and administrative expenses were $5.7 million for the
nine months ended October 31, 1996 as compared to $5.4 million for the nine
months ended October 31, 1995, an increase of $300,000 or 5.6%. The
increase reflects additional professional fees and additional salary costs
incurred in instituting the Company's development program and in managing
and financing the Company's portfolio of adult living communities and other
properties, which increased by two in the nine months ended October 31,
1996. General and administrative expenses were $7.9 million in Fiscal 1995
compared to $6.5 million in Fiscal 1994, representing an increase of $1.4
million or 21.5%. The increase primarily reflects additional salary costs
incurred in instituting the Company's new development program and in
managing and financing the Company's portfolio of properties, which
increased by six in Fiscal 1995, and also reflects increases in various
office expenses. General and administrative expenses were $6.5 million in
Fiscal 1994 compared to $5.2 million in Fiscal 1993, an increase of $1.3
million or 25.0%. The increase reflects increased professional fees and
salary costs incurred in managing and financing the Company's portfolio of
properties which increased by six in fiscal 1994 and the reimbursement to
various properties for certain expenses as stipulated in the HUD settlement
discussed under "Legal Proceedings" below.
. Property Management Expense
Property Management expense for the three months ended October 31,
1996 was $900,000 compared to $100,000 for the three months ended October
31, 1995, an increase of $800,000 or 800%. Property management expense for
the nine months ended October 31, 1996 was $2.8 million as compared to
$300,000 for the nine months ended October 31, 1995, an increase of $2.5
million or 833%. These increases are primarily due to an acceleration of
the Company's program of improvements and repairs at the Company's adult
living communities, including a number of adult living communities that
were refinanced, which reduced the cash flow generated by these properties.
Property management expense for Fiscal 1995 was $600,000 as compared to
$200,000 for Fiscal 1994, an increase of $400,000 or 200%. The increase is
primarily due to an increase in the amount of capital contributions from
limited partners which were subject to guaranteed return obligations.
Property management expense for Fiscal 1994 was $200,000 as compared to
$45,000 property management expense for Fiscal 1993, an increase of
$155,000 or 344.4%. The increase is primarily due to an increase in the
amount of capital contributions from limited partners which were subject to
guaranteed return obligations.
. Loss On Impairment Of Receivables
For the three-month and nine-month periods ended October 31, 1996,
the Company realized a loss on impairment of receivables of $1.6 million
and $18.4 million, respectively as compared to no such loss for the
corresponding periods in 1995. These losses equal the recorded value, net
of deferred income and reserves, of Multi-Family Notes and the related
"Other Partnership Receivables" relating to Owning Partnerships which have
filed, or are expected to file, petitions under Chapter 11 of the U.S.
Bankruptcy Code seeking protection from foreclosure actions. As a result
of the transfers by the Selling Stockholders and one of their affiliates of
additional assets to the Investing Partnerships which issued such Multi-
Family Notes, the recorded value of such Multi-Family Notes and "Other
Partnership Receivables" is unchanged and the Company recorded a
contribution to capital of $21.3 million. See --"Liquidity and Capital
Resources."
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. Officers' Compensation
Officers' Compensation was $300,000 for the three months ended
October 31, 1996 and for the three months ended October 31, 1995.
Officers' Compensation was $900,000 for the nine months ended October 31,
1996 and the nine months ended October 31, 1995. Officers' Compensation
was $1.2 million for Fiscal 1995, Fiscal 1994 and Fiscal 1993.
. Depreciation and Amortization
Depreciation and amortization for the three months ended October 31,
1996 was $800,000 compared to $400,000 for the three months ended October
31, 1995, an increase of $400,000 or 100%. The increase is primarily due
to the prepayment of debt which resulted in the acceleration of the
unamortized portion of these related costs. Depreciation and amortization
for the nine months ended October 31, 1996 was $2.5 million as compared to
$1.9 million for the nine months ended October 31, 1995, an increase of
$600,000 or 31.6%. The increase primarily is attributable to the
prepayment of debt which resulted in the acceleration of the unamortized
portion of these related costs and also to the issuance of additional
Debenture Debt and Unsecured Debt in Fiscal 1995 which had its full
amortization impact in the nine months ended October 31, 1996.
Depreciation and amortization for Fiscal 1995 was $2.6 million compared to
$2.3 million for Fiscal 1994. Depreciation and amortization consists of
amortization of deferred debt expense incurred in connection with debt
issuance. Depreciation and amortization for Fiscal 1994 was $2.3 million
compared to $1.4 million in Fiscal 1993. The increase can be attributable
to the issuance of additional Debenture Debt in Fiscal 1993 which had its
full amortization impact in Fiscal 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company historically has financed operations through cash flow
generated by operations, by arranging for the sale of partnership interests
and through borrowings consisting of Investor Note Debt, Unsecured Debt,
Mortgage Debt and Debenture Debt. The Company's principal liquidity
requirements are for payment of operating expenses, costs associated with
development of new adult living communities, debt service obligations,
guaranteed return obligations to limited partners of Investing Partnerships
to the extent that guaranteed returns cannot be funded from the cash flow
of such partnerships and operating cash deficiencies of Owning
Partnerships.
The Company's cash and cash equivalents were $18.0 million at January
31, 1996, $11.0 million at January 31, 1995 and $9.3 million at January
31, 1994. The increase in cash and cash equivalents at January 31, 1996
reflects, among other things, (i) net income of $5.8 million for Fiscal
1995, compared to a loss of $4.6 million for Fiscal 1994, (ii) increases in
loans and accrued interest payable by $52.0 million, and (iii) amortization
and depreciation for Fiscal 1995 of $2.6 million, offset in part by, among
other things, (i) a decrease in loans payable by $39.3 million, (ii)
distributions of $1.7 million and (iii) payments of other notes payable of
$1.6 million. The increase in cash and equivalents at January 31, 1995
reflects, among other things, (i) increases in loans and accrued interest
payable by $44.0 million and (ii) amortization and depreciation of $2.3
million offset, in part, by (i) a loss of $4.6 million for Fiscal 1994,
(ii) a decrease in loans payable by $31.3 million, (iii) distributions of
$1.9 million and (iv) payments of notes payable of $2.6 million.
Cash flows used by operating activities for the nine months ended
October 31, 1996 were $21.5 million and were comprised of: (i) net loss of
$23.5 million plus (ii) adjustments for non-cash items of $2.5 million less
(iii) the net change in operating assets and liabilities of $500,000. The
adjustments for non-cash items is comprised of depreciation and
amortization. Cash flows used by operating activities for the nine months
ended October 31, 1995 were $8.4 million and were comprised of: (i) net
income of $3.9 million less (ii) adjustments for non-cash items of $5.0
million less (iii) the net change in operating assets and liabilities of
$7.3 million. The adjustments for non-cash items is comprised of
depreciation and amortization of $1.9 million offset by deferred income
earned of $6.9 million. Cash flows provided by operating activities for
Fiscal 1995 were $1.0 million and were comprised of: (i) net income of
$5.8 million less (ii) adjustments for non-cash items of $6.5 million plus
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(iii) the net change in operating assets and liabilities of $1.7 million.
The adjustments for non-cash items is comprised of depreciation and
amortization of $2.6 million offset by deferred income earned of $9.1
million. Cash flows provided by operating activities for Fiscal 1994 were
$1.1 million and were comprised of: (i) net loss of $4.6 million less
(ii) adjustments for non-cash items of $1.2 million plus (iii) the net
change in operating assets and liabilities of $6.9 million. The
adjustments for non-cash items is comprised of depreciation and
amortization of $2.3 million offset by deferred income earned of $3.5
million. Cash flows provided by operating activities for Fiscal 1993 were
$6.7 million and were comprised of: (i) net income of $1.1 million less
(ii) adjustments for non-cash items of $5.2 million plus (iii) the net
change in operating assets and liabilities of $10.8 million. The
adjustments for non-cash items is comprised of depreciation and
amortization of $1.4 million offset for deferred income earned of
$6.7 million.
Net cash used by investing activities for the nine months ended
October 31, 1996 of $36,000 was comprised of the increase in investments
for the period offset by a decrease in investments due to the distribution
of refinancing proceeds due to the Company's portion of general partner
interests in adult living communities. Net cash used by investing
activities for the nine months ended October 31, 1995 of $260,000 was
comprised of the increase in investments. Net cash used by investing
activities for Fiscal 1995 of $567,000 was comprised of the increase in
investments. Net cash used by investing activities for Fiscal 1994 of
$591,000 was comprised of the increase in investments. Net cash used by
investing activities for Fiscal 1993 of $294,000 was comprised of the
increase in investments.
Net cash provided by financing activities for the nine months ended
October 31, 1996 of $12.4 million was comprised of: (i) debt repayments of
$39.5 million less proceeds from the issuance of new debt of $38.2 million
less (ii) payments of notes payable of $100,000 plus (iii) $20.5 million of
contributions in excess of dividends less (iv) the increase in other assets
of $6.7 million due to the capitalization of costs relating to the
development and construction of new properties and the issuance of new debt
offset by the amortization of loan costs primarily in connection with
Debenture Debt. Net cash provided by financing activities for the nine
months ended October 31, 1995 of $7.2 million was comprised of: (i) debt
repayments of $30.6 million less proceeds from the issuance of new debt of
$43.0 million less (ii) payments of notes payable of $1.1 million, less
(iii) dividends paid of $1.4 million less (iv) the increase in other assets
of $2.7 million due to the capitalization of costs associated with the
purchase of an adult living community that was not yet sold and the
capitalization of costs relating to the issuance of new debt as offset by
the amortization of loan costs primarily in connection with Debenture Debt.
Net cash provided by financing activities for Fiscal 1995 of $6.6 million
was comprised of: (i) debt repayments of $39.3 million less proceeds from
the issuance of new debt of $52.0 million less (ii) payments of notes
payable of $1.6 million less (iii) dividends paid of $1.7 million and less
(iv) the increase in other assets of $2.8 million due to the capitalization
of loan costs primarily in connection with Debenture Debt. Net cash
provided by financing activities for Fiscal 1994 of $1.1 million was
comprised of: (i) debt repayments of $31.3 million less proceeds from the
issuance of new debt of $44.0 million less (ii) payments of notes payable
of $2.6 million less (iii) dividends paid of $1.9 million less (iv) the
increase in other assets of $7.1 million due to the capitalization of loan
costs primarily in connection with Debenture Debt. Net cash used by
financing activities for Fiscal 1993 of $3.5 million was comprised of (i)
debt repayments of $21.6 million less proceeds from the issuance of new
debt of $34.4 million less (ii) payments of notes payable of $2.6 million
less (iii) dividends paid of $11.0 million less (iv) the increase in other
assets of $2.7 million due to the capitalization of loan costs primarily in
connection with Debenture Debt.
At January 31, 1996, the Company had total indebtedness, excluding
accrued interest, of $139.2 million, consisting of $78.3 million of
Debenture Debt, $18.9 million of Unsecured Debt, $12.0 million of Mortgage
Debt and $30.0 million of Investor Note Debt. As of October 31, 1996, the
Company has reduced outstanding Investor Note Debt from $30.0 million to
$23.8 million, increased Unsecured Debt from $18.9 million to $31.2
million, and decreased Mortgage Debt from $12 million to $5.0 million.
Since that date, Debenture Debt decreased from $78.3 million to $77.9
million. As a result, total indebtedness, decreased from $139.2 million to
$137.9 million and the Company had cash and cash equivalents at October 31,
1996 of $8.9 million. Contributing to this debt repayment was the
refinancing in February and March 1996 of certain adult living communities
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the Company manages resulting in the return of over $43 million of capital
to limited partners and the reduction of both Investor Note Debt and
Mortgage Debt.
Of the principal amount of total indebtedness at January 31, 1996,
$37.2 million becomes due in the fiscal year ending January 31, 1997; $12.9
million becomes due in the fiscal year ending January 31, 1998; $29.7
million becomes due in the fiscal year ending January 31, 1999; $15.4
million becomes due in the fiscal year ending January 31, 2000; $17.4
million becomes due in the fiscal year ending January 31, 2001, and the
balance of $26.6 million becomes due thereafter. Of the amount maturing in
the fiscal year ending January 31, 1997, $6.8 million is Investor Note Debt
which the Company repaid through the collection of investor notes. The
balance, approximately $30.4 million, included $9.9 million of Debenture
Debt, $5.2 million of Mortgage Debt and $15.3 million of Unsecured Debt.
During Fiscal 1996, the Company repaid approximately $1.9 million of
Debenture Debt and repaid $14.3 million of Unsecured Debt. The Company
also repaid the entire $5.2 million of Mortgage Debt due by January 31,
1997 by refinancing said debt, which refinanced debt became obligations of
the partnerships that own the properties and ceased being obligations of
the Company. The Company anticipates that the balance of $8.0 million of
Debenture Debt and $1.0 million of Unsecured Debt that matures during the
current fiscal year, together with interest on outstanding debt, will be
repaid from the Company s existing cash and cash equivalents, which
amounted to $8.9 million on October 31, 1996, along with the proceeds of
new Unsecured Debt the Company intends to issue, cash flow that will be
generated by property operations and by arranging for the sale of
partnership interests to finance the acquisition of additional existing
adult living communities. However, competition to acquire such communities
has intensified and there can be no assurance that the Company will be able
to acquire such communities on terms favorable enough to offset start-up
costs of newly developed communities and the cash requirements of the
Company's existing operations and debt service.
The Company's debt obligations contain various covenants and default
provisions, including provisions relating to, in some obligations, certain
Investing Partnerships, Owning Partnerships or affiliates of the Company.
Certain obligations contain provisions requiring the Company to maintain a
net worth of, in the most restrictive case, $30,000,000, except that, under
the Capstone agreements the Company will be required to maintain a net
worth in an amount no less than 75% of the net worth of the Company
immediately after the closing of this Offering. Certain obligations of the
Company contain covenants requiring the Company to maintain a debt for
borrowed money to consolidated net worth ratio of, in the most restrictive
case, no more than 5 to 1. At January 31, 1996 and at October 31, 1996,
the Company's debt for borrowed money to consolidated net worth ratio was
4.08 to 1 and 4.44 to 1, respectively. In addition, certain obligations of
the Company provide that an event of default will arise upon the occurrence
of a material adverse change in the financial condition of the Company.
The Company has financed the acquisition of the adult living
communities it operates by arranging for the private placement of limited
partnership interests, and intends to continue this practice for future
acquisitions of existing communities. Past offerings have provided, and it
is anticipated that future offerings will provide, that the limited
partners will receive guaranteed distributions during each of the first
five years of their investment equal to 11% to 12% of their then paid-in
scheduled capital contributions. Pursuant to the management contracts with
the Owning Partnerships, for such five-year period, the Company is required
to pay to the Owning Partnerships, amounts sufficient to fund (i) any
operating cash deficiencies of such Owning Partnerships and (ii) any part
of such guaranteed return not paid from cash flow from the related property
(which the Owning Partnerships distribute to the Investing Partnerships for
distribution to limited partners). During Fiscal 1995 and the nine months
ended October 31, 1996, the properties with respect to which the Company
had such funding obligations distributed to the Company, after payment of
all operating expenses and debt service, $9.7 million and $6.2 million,
respectively, for application to the Company's guaranteed return
obligations. During such periods, the Company funded $1.6 million and $1.6
million, respectively, to cover operating cash deficiencies. These
operating cash deficiencies primarily relate to the Company's attempts to
convert two multi-family properties to adult living communities, which
attempts have thus far been unsuccessful. These conversions account for
69.7% and 65.1%, respectively, of the operating deficiency funding by the
Company during these periods. The Company's funding obligations relating
to one of these two properties expired on December 31, 1996, and will
expire with respect to the other on June 30, 1997.
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The guaranteed return obligations of the Company were greater in
these periods than the amounts the properties distributed to the Company
for application to such guaranteed return obligations and the Company
funded approximately $917,000 and $4.0 million, respectively, to meet such
obligations. The increase in the amount the Company paid with respect to
guaranteed return obligations in the nine month period ended October 31,
1996 primarily resulted from an increase in the amount of capital
contributions from limited partners which were subject to guaranteed return
obligations and the refinancing of a number of its adult living communities
(some of which received mortgage financing for the first time, as they were
previously acquired without mortgage financing). The amount paid by the
Company with respect to its guaranteed return obligations for the nine
months ended October 31, 1996 was offset by an increase in interest income
received by the Company during the nine months ended October 31, 1996,
which was also the result of such refinancings. The refinancings resulted
in the return of over $43 million of capital to limited partners, which
reduced the amount of capital upon which the Company is obligated to
guarantee a return. The refinancings also resulted in increased debt
service payments by the Owning Partnerships which own the refinanced adult
living communities and the establishment of capital improvement reserves
for the refinanced properties. These debt service payments and capital
improvement reserves reduced the cash flow available to pay the guaranteed
returns to limited partners during the nine months ended October 31, 1996.
In addition, the Company accelerated its program of maintenance and repairs
of its adult living communities, including certain adult living communities
which were not refinanced, which also decreased the cash flow generated by
these properties. The decrease in available cash flow exceeded the
reduction in the Company's guaranteed returned obligations for the current
year and, therefore, increased the amount required to be paid by the
Company with respect to such guaranteed return obligations. While the
refinancings increased the Company's funding of guaranteed return
obligations in the short term, the long term effect will be a reduction of
the Company's guaranteed return obligations relating to the refinanced
properties. The capital that was returned to the limited partners (which
causes the reduction in the Company's guaranteed return obligations) was
applied first to the later years in which their capital contributions are
due and then to the earlier years. The refinancings, therefore, reduce the
Company's guaranteed return obligations more in future years than in the
current year and the following year. The aggregate amount of guaranteed
return obligations for fiscal years 1996 through 2002 based on existing
management contracts will increase to $14.8 million in Fiscal 1997, then
decrease to $13.7 million for Fiscal 1998, increase to $15.1 in Fiscal
1999, and decrease to $13.3 million in Fiscal 2000, to $7.4 million in
Fiscal 2001 and to $300,000 in Fiscal 2002. Such amounts of guaranteed
return obligation are calculated based upon paid-in contributions of
limited partners as of January 31, 1996 with respect to Fiscal 1996 and
remaining scheduled capital contributions (as reduced by the re-financings)
with respect to fiscal years 1997 through 2002. Actual amounts of
guaranteed return obligations in respect of such contracts will vary based
upon the timing and amount of such capital contributions. Furthermore,
these amounts are calculated without regard to the cash flow the related
properties will generate to meet guaranteed return obligations. The
aggregate amount of the Company's guaranteed return obligations and
operating cash deficiencies will depend upon a number of factors,
including, among others, the expiration of such obligations for certain
partnerships, the cash flow generated by the properties and the terms of
future offerings by Investing Partnerships. The Company anticipates that
for at least two years the guaranteed return obligations with respect to
existing and future Investing Partnerships will exceed the cash flow
generated by the related properties, which will result in the need to
utilize cash generated by the Company to make management contract payments
which are distributed by the Owning Partnerships to the Investing
Partnerships to pay limited partners in such partnerships their guaranteed
return. The Company intends to structure future offerings to minimize the
likelihood that it will be required to utilize the cash it generates to pay
amounts utilized to pay guaranteed returns and operating cash deficiencies,
but there can be no assurance that this will be the case.
In the past, limited partners have been allowed to prepay capital
contributions. The amount of these prepayments received upon the closings
of the sales of limited partnership interests in Investing Partnerships, as
a percentage of total sales price, averaged 63.9% in Fiscal 1993, 64.6% in
Fiscal 1994, 52.6% in Fiscal 1995 and 54.7% for the nine months ended
October 31, 1996. Prepayments of capital contributions do not result in
the prepayment of the related purchase notes. Instead, such amounts are
loaned to the Company by the Investing Partnership. As a result of such
loans and crediting provisions of the related purchase agreements, the
Company records the notes receivable corresponding to the purchase notes
net of such loans. Therefore, these prepayments act to reduce the recorded
value of the Company's note receivables and reduce interest income received
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by the Company. Pursuant to the terms of offerings, the Company, as the
general partner of each Investing Partnership, has the option not to accept
future prepayments by limited partners of capital contributions. The
Company has not determined whether it will continue to accept prepayments
by limited partners of capital contributions.
As of October 31, 1996, the recorded value, net of deferred income,
of Multi-Family Notes was $106.5 million. All but approximately $348,000
of the $52.6 million of "Other Partnership Receivables" recorded on the
Company's Consolidated Financial Statements as of October 31, 1996 relate
to Multi-Family Notes. (See Note 4 to Consolidated Financial Statements.)
The Company holds 169 Multi-Family Notes which are secured by controlling
interests in 126 Multi-Family Properties.
A number of the Multi-Family Properties are in default on their
respective mortgages. The Owning Partnerships that own these properties
have been negotiating with the respective mortgage holders and, in some
cases, have obtained workout agreements pursuant to which the lenders
generally agree during the term of the agreement not to take any action
regarding the mortgage default and to accept reduced debt service payments
for a period of time, with the goal of increasing property cash flow to
enable the property to fully service its mortgage. Seven of these Owning
Partnerships have filed petitions seeking protection from foreclosure
actions under Chapter 11 of the U.S. Bankruptcy Code ("Chapter 11
Petitions") and the Company anticipates that in the near future two
additional Owning Partnerships will similarly seek such protection by
filing Chapter 11 Petitions (said nine Owning Partnerships are,
collectively, the "Protected Partnerships").
The Selling Stockholders and one of their affiliates have assigned
certain interests they own personally in various partnerships that own
Multi-Family properties (the "Assigned Interests") to the Investing
Partnerships that own interests in the Protected Partnerships, which
Assigned Interests provide additional assets at the Investing Partnership
level and, as a result, additional security for the related Multi-Family
Notes. Each of these Investing Partnerships has agreed to transfer the
Assigned Interests back to the Selling Stockholders and their affiliate if
the applicable Protected Partnership emerges from its bankruptcy proceeding
with possession of the real property and improvements which it owned at the
time of its Chapter 11 Petition.
The Company has recorded a loss of $18.4 million to reflect the
impairment of the Multi-Family Notes for which the Assigned Interests
provide additional security and the related "Other Partnership
Receivables." As a result of the transfers by the Selling Stockholders and
their affiliate of the Assigned Interests to the Investing Partnerships
which issued such Multi-Family Notes, the recorded value of such Multi-
Family Notes and "Other Partnership Receivables" is unchanged and the
Company has recorded a contribution to capital of $21.3 million. Due to a
re-evaluation by one of the Protected Partnerships of the value of its real
property and of the likelihood of successfully confirming a plan of
reorganization, said Protected Partnership has converted its bankruptcy
proceeding to a Chapter 7 liquidation proceeding. The Company, therefore,
does not anticipate a successful reorganization of such property, but
expects that this Multi-Family Note and the other Multi-Family Notes
relating to the Protected Partnerships will be collected due to the
additional collateral provided by the Assigned Interests.
There are 18 remaining Owning Partnerships that own Multi-Family
Properties that are in default of their mortgages. As of October 31, 1996,
the recorded value, net of deferred income, of the Multi-Family Notes and
"Other Partnership Receivables" relating to these 18 properties was $33.8
million. The Company has established reserves of $10.1 million to address
the possibility that these notes may not be collected in full. It is
possible that the 18 Owning Partnerships that own Multi-Family Properties
that are in default on their mortgages will file Chapter 11 Petitions or
take similar actions seeking protection from their creditors.
The Multi-Family Properties were typically built or acquired with the
assistance of programs administered by the United States Department of
Housing and Urban Development ("HUD") that provide mortgage insurance,
favorable financing terms and/or rental assistance payments to the owners.
As a condition to the receipt of assistance under these and other HUD
programs, the properties must comply with various HUD requirements,
including limiting rents on these properties to amounts approved by HUD.
Most of the rental assistance payment contracts relating to the Multi-
Family Properties will expire over the next few years. HUD has introduced
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various initiatives to restructure its housing subsidy programs by
increasing reliance on prevailing market rents, and by reducing spending on
future rental assistance payment contracts by, among other things, not
renewing expiring contracts and by restructuring mortgage debt on those
properties where a decline in rental revenues is anticipated. Due to
uncertainty regarding the final policies that will result from these
initiatives and numerous other factors that affect each property which can
change over time (including the local real estate market, the provisions of
the mortgage debt encumbering the property, prevailing interest rates and
the general state of the economy) it is impossible for the Company to
determine whether these initiatives will have an impact on the Multi-Family
Properties and, if there is an impact, whether the impact will be positive
or negative.
In view of the foregoing, there can be no assurance that other Owning
Partnerships that own Multi-Family Properties will not default on their
mortgages, file Chapter 11 Petitions, and/or lose their properties through
foreclosure. Any such future mortgage defaults could, and any such future
filings of Chapter 11 petitions or the loss of any such property through
foreclosure would, cause the Company to realize a loss equal to the
recorded value of the applicable Multi-Family Note plus any related
advances, net of any deferred income recorded for such Multi-Family Note
and any reserves for such note previously established by the Company which
would reduce such loss. In addition, the Company could be required to
realize such a loss even in the absence of mortgage defaults, Chapter 11
Petitions or the loss of any such property through foreclosure if, at any
time in which the Company's financial statements are issued, such property
is considered impaired under applicable accounting rules.
As previously described, the Protected Partnerships (and the other
defaulting Owning Partnerships) have generated little or no cash flow and,
therefore, the related Multi-Family Notes have contributed little or no
interest income in the periods covered in the Consolidated Financial
Statements of the Company. The Assigned Interests have, prior to their
assignment to the Investing Partnerships, generated positive cash flows.
To the extent the Assigned Interests continue to generate positive cash
flows, the Company will be entitled to receive such amounts as interest
income on the related Multi-Family Notes.
The future growth of the Company will be based upon the continued
acquisition of existing adult living communities and the development of
newly-constructed adult living communities. The Company anticipates that
it will acquire between four and eight existing adult living communities
over the next two years. It is anticipated that future acquisitions of
existing adult living communities will be financed by a combination of
mortgage financing and by arranging for the sale of partnership interests.
The Company recently acquired an adult living community in Mesa, Arizona
containing 166 units and has entered into contracts to acquire two adult
living communities in Sparks, Nevada containing 92 apartment units and 64
apartment units, respectively. In addition, the Company has acquired two
existing adult living communities from existing Owning Partnerships, and
may engage in other similar transactions. The aggregate purchase price of
the above communities the Company has recently purchased and has agreed to
purchase is approximately $22.8 million. The Company has financed and
intends to finance approximately $16.4 million of the purchase price these
acquisitions through mortgage financing with the remainder of the purchase
price derived from the sale of limited partnership interests in new
Investing Partnerships which will own interests in new Owning Partnerships.
The Company regularly obtains such acquisition financing from three
different commercial mortgage lenders and, in view of its ready access to
such mortgage financing, has not sought any specific commitments or letters
of intent with regard to future, unidentified acquisitions. Similarly, the
Company believes that it has sufficient ability to finance its future
acquisitions in part by arranging for the sale of partnership interests.
Limited partners typically agree to pay their capital contributions over a
five-year period, and deliver notes representing the portion of their
capital contribution that has not been paid in cash. The Company borrows
against the notes delivered by investors to generate cash when needed,
including to pursue its development plan and to repay debt. The Company s
present Investor Note Debt lenders do not have sufficient lending capacity
to meet all of the Company s future requirements. However, the Company
currently is negotiating with several new Investor Note Debt lenders which
the Company believes will have sufficient lending capacity to meet all of
the Company s foreseeable Investor Note Debt borrowing requirements.
The Company also has implemented a new development plan pursuant to
which it currently intends to commence construction on between 18 and 24
new adult living communities during the next two years. The Company will
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utilize the proceeds of this offering plus mortgage financing to construct,
own and operate new communities. The Company's development plan
contemplates its first new communities being built in Texas. The Company
has commenced construction with mortgage financing from Bank United for up
to $7.0 million and $7.3 million, respectively, on two adult living
communities in Corpus Christi and Temple, Texas, respectively. The Company
holds options to acquire three additional sites in Texas and is negotiating
with several additional lenders to obtain financing to develop these sites.
The Company also intends to utilize long-term lease financing
arrangements to develop and operate new communities. The Company has
entered into an agreement with Capstone pursuant to which Capstone will
provide up to $39.0 million for 100% of the development cost of four adult
living communities that will be operated by the Company pursuant to long-
term leases with Capstone. The Company has closed the development
financing with Capstone and begun construction on four communities which
are located in San Angelo, Wichita Falls, El Paso and Abilene, Texas. The
agreement contemplates that Capstone will acquire the properties and will
enter into a development agreement and a lease agreement with the Company
with respect to each property. Each development agreement requires that
construction commence within 30 days after the acquisition of the property
and be complete within 15 months of commencement. Each lease agreement
will have a term of 15 years with three optional five-year renewal periods.
The agreement requires a covenant that each community financed by Capstone
maintain annualized earnings before certain deductions of at least 1.25
times the rent from the respective adult living community. The obligations
under the development agreements are, and the obligations under the leases
will be, direct obligations of the Company. The Company will be required
to maintain a net worth in an amount no less than 75% of the net worth of
the Company immediately after the closing of this Offering. The Company
will be granted a right of first refusal and an option to purchase the
properties.
The Company is actively engaged in negotiations with other mortgage
and long-term lease lenders to provide additional construction financing.
The Company anticipates that most of the construction mortgage loans it
obtains to finance the development and lease-up costs of new adult living
communities, including the loans closed with Bank United, will contain
terms where the lender will fund between 75% to 80% of such costs,
requiring the Company to contribute 20% to 25% of such costs. The Company
arranged for the sale of limited partnership interests in two partnerships
organized to make second mortgage loans to the Company to fund
approximately 20% of the costs of developing three new adult living
communities. The Company will use its net proceeds of the Offering (above
the approximately $3 million to be used for working capital and general
corporate purposes and the approximately $23 million to be used to repay
debt) plus funds generated by its operations to fund the 20% to 25% of
development costs not provided by construction loans.
The annual dividend requirement on the Convertible Preferred Stock is
$4,250,000 ($4,887,500 if the Over-allotment Option is exercised in full).
The Company anticipates that the future earnings of the Company, if any,
will not initially be adequate to pay the dividends on the Convertible
Preferred Stock out of earnings. Although the Company intends to pay
quarterly dividends out of available surplus, there can be no assurance
that the Company will maintain sufficient surplus or that future earnings,
if any, will be adequate to pay the dividends on the Convertible Preferred
Stock. Under the Delaware General Corporation Law, dividends may be paid
only out of legally available funds, which includes current and the prior
fiscal year's net profits as well as surplus. Failure to pay a total of
four consecutive quarterly dividends will entitle the holders of the
Convertible Preferred Stock, voting separately as a class, to elect one
director. See "Description of Capital Stock -- Convertible Preferred
Stock." In addition, no dividends or distributions may be declared, paid
or made if the Company is or would be rendered insolvent or in default
under the terms of senior securities by virtue of such dividend or
distribution.
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BUSINESS
GENERAL
The Company is a fully integrated provider of adult living
accommodations and services which acquires, finances, develops and manages
adult living communities. The Company's revenues have been and are
expected to continue to be, primarily derived from sales of partnership
interests in partnerships it organizes to finance the acquisition of
existing adult living communities. The Company manages such adult living
communities and, as a result, is one of the largest operators of adult
living communities in the United States, operating communities offering
both independent- and assisted-living services. The American Seniors
Housing Association ranks the Company as one of the top ten owners and
operators of adult living communities. The Company currently operates 32
adult living communities containing 4,646 apartment units in 11 states in
the Sun Belt and the Midwest. The Company also operates one skilled
nursing facility containing 57 beds and one residential apartment complex
containing 237 units. One of the adult living facilities the Company
operates contains 70 skilled nursing beds. The facilities operated by the
Company had an average occupancy rate of approximately 91% at January 24,
1997. The Company's operating objective is to provide high-quality,
personalized living services to senior residents, primarily persons over
the age of 75. To the extent that the development plan described below is
successfully implemented, the Company anticipates that the percentage of
its revenues derived from sales of partnership interests would decrease and
revenues derived from newly constructed communities would increase.
Historically, the Company has financed the acquisition and
development of multi-family and adult living properties by utilizing
mortgage financing and by arranging for the sale of limited partnership
interests. The Company is the general partner of all but one of the
partnerships that owns the adult living communities in the Company's
portfolio and the Company manages all of the adult living communities in
its portfolio. The Company has a participation in the cash flow, sale
proceeds and refinancing proceeds of the properties after certain priority
payments to the limited partners. The existing adult living communities
managed by the Company are not owned by the Company. Future revenues, if
any, of the Company relating to such communities would primarily arise in
the form of (i) deferred income on sales of interests in the Owning
Partnerships for such communities, (ii) management fees and (iii) amounts
payable by the Investing Partnerships to the Company in the event of the
subsequent sale or refinancing of such communities. The Company intends to
continue to finance its future acquisitions of existing adult living
communities by utilizing mortgage financing and by arranging for the sale
of partnership interests, and anticipates acquiring four to eight such
communities during the next two years.
Current demographic trends suggest that demand for both independent-
living and assisted-living services will continue to grow. According to
U.S. Bureau of Census data, the Company's target market, people over age
75, is one of the fastest growing segments of the U.S. population and is
projected to increase by more than 24% to 16.3 million between 1990 and
2000. While the population of seniors grows, other demographic trends
suggest that an increasing number of them will choose adult living centers
as their residences. According to U.S. Bureau of Census data, the median
net worth of householders over age 75 has increased to over $75,000. At
the same time, the Census shows that the number of seniors living alone has
increased, while women, who have been the traditional care-givers, are more
likely to be working and unable to provide care in the home. The Company
believes that many seniors find that adult living centers provide them with
a number of services and features that increasingly they are unable to find
at home, including security, good nutritious food and companionship.
Furthermore, the National Long Term Care Surveys, a Federal study that
regularly surveys close to 20,000 people aged 65 and older, indicate that,
despite the growth in the elderly population, the percentage of elderly
that are disabled and need assistance with activities of daily living
("ADLs") has decreased substantially and is expected to continue to
decrease. This suggests that demand for independent living communities
will increase in the future.
Assisted-living supplements independent-living services with
assistance with ADLs in a cost effective manner while maintaining
residents' independence, dignity and quality of life. Such assistance
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consists of personalized support services and health care in a non-
institutional setting designed to respond to the individual needs of the
elderly who need assistance but who do not need the level of health care
provided in a skilled nursing facility.
The Company has instituted a development plan which will result in
the commencement of new construction of between 18 and 24 adult living
communities during the next two years which it will own or will operate
pursuant to long-term leases or similar arrangements. The Company
anticipates that each new community to be developed by it will offer both
independent and assisted-living services. The Company's development plan
contemplates its first new communities being built in Texas. Construction
has commenced on six adult living communities. The Company also holds
options on three additional sites. The Company generally plans to
concentrate on developing projects in only a limited number of states at
any given time. The Company believes that this focus will allow it to
realize certain efficiencies in the development and management of
communities. The Company also plans to expand its portfolio of adult
living communities by acquiring between four and eight communities during
the next two years and to finance the acquisitions by arranging for the
sale of partnership interests in limited partnerships. The Company is the
managing general partner of the partnerships that own all but one of the 32
adult living communities, the nursing home and the residential apartment
complex in its current portfolio and will continue to act in this capacity
for all future properties which it acquires. All of the adult living
communities and other properties are managed by the Company pursuant to
written management contracts.
The Company's adult living communities offer personalized assistance,
supportive services and selected health care services in a professionally
managed group living environment. Residents may receive individualized
assistance which is available 24 hours a day, and is designed to meet their
scheduled and unscheduled needs. The services for independent-living
generally include three restaurant-style meals per day served in a common
dining room, weekly housekeeping and flat linen service, social and
recreational activities, transportation to shopping and medical
appointments, 24 hour security and emergency call systems in each unit.
The services for assisted-living residents generally include those provided
to independent-living residents, as supplemented by assistance with ADLs
including eating, bathing, dressing, grooming, personal hygiene and
ambulating; health monitoring; medication management; personal laundry
services; and daily housekeeping services.
The Company focuses exclusively on "private-pay" residents, who pay
for housing or related services out of their own funds or through private
insurance, rather than relying on the few states that have enacted
legislation enabling assisted-living facilities to receive Medicaid funding
similar to funding generally provided to skilled nursing facilities. The
Company intends to continue its "private-pay" focus as it believes this
market segment is, and will continue to be, the most profitable. This
focus will enable the Company to increase rental revenues as demographic
pressure increases demand for adult living facilities and avoid potential
financial difficulties it might encounter if it were dependent on Medicaid
or other government reimbursement programs that may suffer from health care
reform, budget deficit reduction or other pending or future government
initiatives.
PARTNERSHIP OFFERINGS
Historically, the Company has financed the acquisition and
development of adult living properties by utilizing mortgage financing and
by arranging for the sale of limited partnership interests in Investing
Partnerships formed to acquire controlling interests in Owning
Partnerships. The Company is the managing general partner of all but one
of the Owning Partnerships that own the adult living communities currently
included in the Company's portfolio and the Company manages all of the
adult living communities in its portfolio. The Company is also the general
partner of 26 of the 37 Investing Partnerships. As a general partner of
such partnerships, the Company has a participation in the cash flow, sale
proceeds and refinancing proceeds of the properties after certain priority
payments to the limited partners. Typically, an Owning Partnership is
organized by the Company to acquire a property which the Company has
identified and selected based on a broad range of factors. Generally, 99%
to 100% of the partnership interests in an Owning Partnership initially are
owned by the Company. An Investing Partnership is formed as a limited
partnership for the purpose of acquiring all or substantially all of the
total partnership interests owned by the Company. Limited partnership
interests in the Investing Partnership are sold to investors in exchange
for (i) all cash or (ii) a cash down payment and full recourse promissory
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notes (an "Investor Note"). In the case of an investor that does not
purchase a limited partnership interest for all cash, the investor's
limited partnership interest (a "Limited Partnership Interest") serves as
collateral security for that investor's Investor Note. Under the terms of
an agreement (a "Purchase Agreement"), the Investing Partnership purchases
from the Company the partnership interests in the Owning Partnership
partially with cash raised from the cash down payment made by its investors
and the balance by the delivery of the Investing Partnership's promissory
note (a "Purchase Note"). The Purchase Notes executed by Investing
Partnerships prior to 1986 have balloon payments of principal due on
maturity. The Purchase Notes executed since January 1, 1987 are self-
liquidating (without balloon payments). The Investing Partnership, as
collateral security for its Purchase Note, pledges to the Company the
Investor Notes received from its investors, its interest in the Limited
Partnership Interests securing the Investor Notes, as well as the entire
partnership interest it holds in the Owning Partnership which it purchased
from the Company. In addition, each Purchase Agreement provides that the
Investing Partnership shall pay the Company an amount equal to a specified
percentage of the Investing Partnership's share of the net proceeds from
capital transactions (such as the sale or refinancing of the underlying
property) in excess of the return obligations and certain other amounts.
The limited partners in Investing Partnerships typically agree to pay
their capital contributions over a five-year period. Past offerings have
provided, and it is anticipated that future offerings will provide, that
the limited partners will receive guaranteed distributions during each of
first five years of their investment equal to between 11% to 12% of their
then paid-in scheduled capital contributions. Pursuant to the management
contracts with the Owning Partnerships, the Company is required to pay to
the Owning Partnerships amounts sufficient to fund (i) any operating cash
deficiencies of such Owning Partnerships and (ii) any part of such
guaranteed return not paid from cash flow from the related property (which
the Owning Partnerships distribute to the Investing Partnerships for
distribution to limited partners). During Fiscal 1995 and the nine months
ended October 31, 1996, the Company paid approximately $917,000 and $4.0
million, respectively, with respect to guaranteed return obligations, and
paid approximately $1.6 million and $1.6 million, respectively with respect
to operating cash deficiencies. The increase in the amount the Company
paid with respect to guaranteed return obligations in the nine month period
ended October 31, 1996 primarily results from an increase in the amount of
capital contributions from limited partners which were subject to
guaranteed return obligations and the refinancing of a number of its adult
living communities (some of which received mortgage financing for the first
time as they were previously acquired without mortgage financing). The
amount paid by the Company with respect to its guaranteed return
obligations for the nine months ending October 31, 1996 was offset and
exceeded by an increase in interest income received by the Company during
the nine months ended October 31, 1996, which was also the result of such
refinancings. The refinancings resulted in the return of over $43 million
of capital to limited partners, which reduced the amount of capital upon
which the Company is obligated to make payments which are distributed to
limited partners in respect of guaranteed returns. The refinancings also
resulted in increased debt service payments by the Owning Partnerships
which own the refinanced adult living communities and the establishment of
capital improvement reserves for the refinanced properties. These debt
service payments and capital improvement reserves reduced the cash flow
available to pay the guaranteed return to limited partners during the nine
months ended October 31, 1996. In addition, the Company accelerated its
program of maintenance and repairs of its adult living communities,
including certain adult living communities which were not refinanced, which
also decreased the cash flow generated by these properties. The decrease
in available cash flow exceeded the reduction in the guaranteed return
obligations for the current year and, therefore, increased the amount
required to be paid by the Company with respect to such guaranteed return
obligations. The aggregate amount which the Company will be required to
pay under the management contracts with respect to guaranteed return
obligations and cash operating deficiencies will depend upon a number of
factors, including, among others, the expiration of such obligations for
certain partnerships, the cash flow generated by the properties the Company
currently operates, the terms of future offerings by Investing Partnerships
and the cash flow to be generated by the related properties. Based upon
its estimates of these factors, which estimates may vary materially from
actual results, the Company anticipates that for at least the next two
years, the guaranteed return obligations with respect to existing and
future Investing Partnerships will exceed the cash flow generated by the
related properties, which will result in the need to utilize cash generated
by the Company to meet guaranteed return obligations. To the extent that
the Company must expend funds to meet its guaranteed return obligations and
operating cash deficiencies, the Company will have fewer funds available to
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utilize for other business purposes, including funds for application to the
new development plan, to meet other liquidity and capital resource
commitments and for dividends. The Company will attempt to structure future
offerings to minimize the likelihood that it will be required to utilize
the cash it generates to pay guaranteed returns and operating cash
deficiencies, but there can be no assurance that this will be the case.
The Company's obligations with respect to guaranteed returns and
operating cash deficiencies are contractual obligations of the Company
under the management contracts to make payments to the Owning Partnerships.
In general, the accrual of expenses arising from obligations of the
Company, including such obligations under the management contracts, reduces
the amount of earnings that might otherwise be available for distribution
to stockholders.
In the past, limited partners have been allowed to prepay capital
contributions. Prepayments of capital contributions do not result in the
prepayment of the related Purchase Notes. Instead, such amounts are loaned
to the Company by the Investing Partnership. Loans made prior to the
reorganization of the Company in 1996 were made to J&B Management Company
and, as part of the reorganization, were assumed by the Company. The
purchase agreements provide that, should any failure to repay any such loan
occur, the Company must credit to the Investing Partnership the amounts
loaned at the time such amount would be required to be paid by the
Investing Partnership to meet its obligations then due under the Purchase
Note. As a result of such loans and such provisions of the purchase
agreements, the Company records the notes receivable corresponding to the
Purchase Notes net of such loans. Therefore, these prepayments act to
reduce the recorded value of the Company's notes receivable and reduce
interest income received by the Company. Pursuant to the terms of
offerings, the Company has the option not to accept future prepayments by
limited partners of capital contributions. The Company has not determined
whether it will continue to accept prepayments by limited partners of
capital contributions.
After the initial five-year period, the limited partners are still
entitled to the same specified rate of return on their investment, but only
to the extent there are sufficient cash flows from the related adult living
communities. To the extent property cash flows are not sufficient to pay
the limited partners their specified return, the right to receive this
shortfall accrues until proceeds are available from a sale or refinancing
of the property. Under the management contracts, during the initial five-
year period, the Company is entitled to retain all cash flows in excess of
the guaranteed return as a management fee, thereafter the Company's
management fee is 40% of the excess of cash flow over the amount necessary
to make the specified return. The remaining 60% of cash flows are to be
distributed by the Owning Partnerships to the Investing Partnerships for
distribution to limited partners.
All of the adult living communities, the nursing home and the
residential apartment complex operated by the Company are managed by the
Company pursuant to written management contracts, which generally have a
five year term coterminous with the Company's obligations in respect of
operating cash deficiencies and guaranteed returns. These five-year
obligations have terminated for eight of the 37 Investing Partnerships.
After the initial five year term, the management contracts are
automatically renewed each year, but are cancelable on 30 to 60 days notice
at the election of either the Company or the related Owning Partnership.
The termination of any management contracts would result in the loss of fee
income, if any, under those contracts. The Company is the managing general
partner of 31 of the 32 Owning Partnerships that own the adult living
communities, the nursing home and the residential apartment complex
operated by the Company. The Company also is the general partner of 26 of
the 37 Investing Partnerships formed to acquire 98.5% to 99% of the equity
interests in said Owning Partnerships. In general, under the terms of the
Investing Partnerships' partnership agreements, limited partners have only
limited rights to take part in the control, conduct or operation of the
partnerships. The partnership agreements for the 26 Investing Partnerships
for which the Company is the general partner provide that a majority in
ownership interests of the limited partners can remove the Company as the
general partner at any time. It is anticipated that all future Investing
Partnership agreements will contain the same right to remove the Company as
a general partner. In addition, the consent of a majority in ownership
interests of limited partners in such Investing Partnerships is required to
be obtained in connection with any sale or disposition of the underlying
property.
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The Company intends to continue to finance its future acquisitions of
existing adult living communities by utilizing mortgage financing and by
arranging for the sale of partnership interests. The Company plans to
acquire between four to eight existing adult living communities over the
next two years. However, competition to acquire such communities has
intensified, and there can be no assurance that the Company will be able to
acquire such communities on terms favorable enough to offset the start-up
losses associated with newly developed communities and the costs and cash
requirements arising from the Company's overhead and existing debt and
guarantee obligations. The Company is, and will continue to be, the
managing general partner of the partnerships that own acquired communities.
In addition, the Company arranged for the sale of limited partnership
interests in two partnerships organized to make second mortgage loans to
the Company to fund approximately 20% of the costs of developing three new
adult living communities.
THE LONG-TERM CARE MARKET
The long-term care services industry encompasses a broad range of
accommodations and healthcare services that are provided primarily to
seniors. Independent-living communities attract seniors who desire to be
freed from the burdens and expense of home ownership, food shopping and
meal preparation and who are interested in the companionship and social and
recreational opportunities offered by such communities. As a senior's need
for assistance increases, the provision of assisted-living services in a
community setting is more cost-effective than care in a nursing home. A
community which offers its residents assisted-living services can provide
assistance with various ADLs (such as bathing, dressing, personal hygiene,
grooming, ambulating and eating), support services (such as housekeeping
and laundry services) and health-related services (such as medication
supervision and health monitoring), while allowing seniors to preserve a
high degree of autonomy. Generally, residents of assisted-living
communities require higher levels of care than residents of independent-
living facilities, but require lower levels of care than residents of
skilled-nursing facilities.
INDUSTRY TRENDS
The Company believes its business benefits from significant trends
affecting the long-term care industry. The first is an increase in the
demand for elder care resulting from the continued aging of the U.S.
population. U.S. Bureau of Census shows that the average age of the
Company's residents (83 years old) places them within one of the fastest
growing segments of the U.S. population. While increasing numbers of
Americans are living longer and healthier lives, many choose community
living as a cost-effective method of obtaining the services and life-style
they desire. Adult living facilities that offer both independent and
assisted-living services give seniors the comfort of knowing that they will
be able to "age in place" -- something they are increasingly unable to do
at home.
The primary consumers of long-term care services are persons over the
age of 65. This group represents one of the fastest growing segments of
the population. According to U.S. Bureau of the Census data, the number of
people in the U.S. age 65 and older increased by more than 27% from 1981 to
1994, growing from 26.2 million to 33.2 million. Such census data also
shows that the segment of the population over 85 years of age, which
comprises the largest percentage of residents at long-term care facilities,
is projected to increase by more than 37% between the years 1990 and 2000,
growing from 3.0 million to 4.1 million. The Company believes that these
trends depicted in the graph below will contribute to continued strong
demand for adult living communities.
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PROJECTED PERCENTAGE CHANGE IN THE ELDERLY POPULATION OF THE U.S.
1981 1990 1995 2000 2005 2010
---- ---- ---- ---- ---- ----
65-84 0 17.5% 25.2% 26.2% 27.3% 34.6%
85+ 0 28.4% 54.3% 76.3% 94.1% 112.7%
SOURCE: U.S. BUREAU OF THE CENSUS
A trend benefiting the Company, and especially its provision of
independent-living services, is that as the population of seniors swells,
the percentage of seniors that are disabled and need assistance with ADLs
has steadily declined. According to the National Long Term Care Surveys, a
federal study, disability rates for persons aged 65 and older have declined
by 1 to 2 percent each year since 1982, the year the study was commenced.
In 1982, approximately 21% of the 65 and over population was disabled and
in 1995 only 10% was disabled. This trend suggests that demand for
independent living services will increase in the future.
Other trends benefiting the Company include the increased financial
net worth of the elderly population, the changing role of women and the
increase in the population of individuals living alone. As the number of
elderly in need of assistance has increased, so too has the number of the
elderly able to afford residences in communities which offer independent
and/or assisted-living services. According to U.S. Bureau of the Census
data, the median net worth of householders age 75 or older has increased
from $55,178 in 1984 and $61,491 in 1988 to $76,541 in 1991. Furthermore,
according to the same source, the percentage of people 65 years and older
below the poverty line has decreased from 24.6% in 1970 to 15.7% in 1980 to
12.2% in 1990. Historically, unpaid women (mostly daughters or daughters-
in-law) represented a large portion of the care givers of the non-
institutionalized elderly. The increased number of women in the labor
force, however, has reduced the supply of care givers, and led many seniors
to choose adult living communities as an alternative. Since 1970, the
population of individuals living alone has increased significantly as a
percentage of the total elderly population. This increase has been the
result of an aging population in which women outlive men by an average of
6.9 years, rising divorce rates, and an increase in the number of unmarried
individuals. The increase in the number of the elderly living alone has
also led many seniors to choose to live in adult living communities.
The increased financial net worth of the elderly population is
illustrated by the following chart:
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MEDIAN NET WORTH
1988 1991
---- ----
45-54 57,466 58,250
55-64 80,032 83,041
65+ 73,471 88,192
SOURCE: U.S. BUREAU OF THE CENSUS
Another trend benefiting the Company, and especially its provision of
assisted-living services, is the effort by the government, private insurers
and managed care organizations to contain health care costs by limiting
lengths of stay, services, and reimbursement amounts. This has resulted in
hospitals discharging patients earlier and referring them to nursing homes.
At the same time, nursing home operators continue to focus on providing
services to sub-acute patients requiring significantly higher levels of
skilled nursing care. The Company believes that this "push down" effect
has and will continue to increase demand for assisted-living facilities
that offer the appropriate levels of care in a non-institutional setting in
a more cost-effective manner. The Company believes that all of these
trends have, and will continue to, result in an increasing demand for adult
living facilities which provide both independent and assisted-living
services.
STRATEGY
Growth. The Company's growth strategy focuses on the development of
communities offering both independent and assisted-living apartment units
and on continued intensive communities management. The Company believes
that there are numerous markets that are not served or are underserved by
existing adult living communities and intends to take advantage of these
circumstances, plus the present availability of construction financing on
favorable terms, to develop new communities of its own design in desirable
markets. Historically, the Company has expanded by acquisition of existing
communities. The Company has taken advantage of the inexperience and
operating inefficiencies of the previous owners of these communities and
has improved the financial performance of these properties by implementing
its own management and marketing techniques. The Company's sophistication
in management and marketing is evidenced by its approximate 91% occupancy
rate at January 24, 1997 at its existing communities.
The Company will continue to acquire existing communities and intends
to finance these acquisitions, in part, by arranging for the sale of
partnership interests in such communities. The Company believes that its
continuing acquisition and financing of adult living communities will
provide additional cash flow to help the Company pursue its development
program. Competition to acquire existing adult living communities has
intensified, and the Company anticipates that, for at least the next two
years, it will not be able to acquire such communities on terms favorable
enough to offset the startup losses associated with newly developed
communities and the costs and cash requirements arising from the Company's
overhead and existing debt and guaranty obligations. The Company also
believes its established ability to privately place equity and debt
securities could enhance its ability to pursue its development plan.
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New Development. The Company's development plan emphasizes a
"prototype" adult living community that it has designed. The prototype
incorporates attributes of the various communities managed by the Company,
which it believes appeal to the elderly. The prototype contains 142
apartment units and will be located on sites of up to seven acres. The
Company believes that its development prototype is larger than many
independent-living and most assisted-living communities, which typically
range from 40 to 80 units. The Company believes that the greater number of
units will allow the Company to achieve economies of scale in operations,
resulting in lower operating costs per unit, without sacrificing quality of
service. The Company designed its prototype to achieve economics of scale
in management and operations. These savings primarily are achieved through
lower staffing, maintenance and food preparation costs per unit, without
sacrificing quality of service. In that the time and effort required to
develop a community (including site selection, land acquisition, zoning
approvals, financing, and construction) do not vary materially for a larger
community than for a smaller one, developmental economics of sale are also
realized in that more apartment units are being produced for each community
that is developed.
Common areas will include recreation areas, dining rooms, a kitchen,
administrative offices, an arts and crafts room, a multi-purpose room,
laundry rooms for each floor, a beauty salon/barber shop, a library reading
area, card rooms, a billiards room, a health center to monitor residents'
medical needs and covered and assigned parking. The Company believes that
the common areas and amenities offered by its prototype represent the state
of the art for independent-living communities and are superior to those
offered by smaller independent-living communities or by most communities
that offer only assisted living services. Unit sizes will range from 368
square feet for a studio to 871 square feet for a two bedroom/two bath
unit. The Company's prototype contains 46 studio apartments, 92 one
bedroom/one bathroom apartments and 4 two bedroom/two bathroom apartments,
encompassing approximately 108,000 square feet. Each apartment unit will
be a full apartment, including a kitchen or kitchenette.
Each community will offer residents a choice between independent-
living and assisted-living services. As a result, the market for each
community will be broader than for communities that offer only either
independent-living or assisted-living services. Due to licensing
requirements and the expense and difficulty of converting existing
independent-living units to assisted-living units, independent-living
and assisted-living units in many communities generally are not
interchangeable. However, the prototype is designed to allow, at any time,
for conversion of units, at minimum expense, for use as either independent-
living or assisted-living units. Each community therefore may adjust its
mix of independent-living and assisted-living units as the market or
existing residents demand. The Company believes that part of the appeal
of this type of community is that residents will be able to "age in place"
with the knowledge that they need not move to another community if they
require assistance with ADLs. The Company believes that the ability to
retain residents by offering them higher levels of services will result in
stable occupancy with enhanced revenue streams.
Market Selection Process. In selecting geographic markets for
potential expansion, the Company considers such factors as a potential
market's population, demographics and income levels, including the existing
and anticipated future population of seniors who may benefit from the
Company's services, the number of existing long-term care communities in
the market area and the income level of the target population. While the
Company does not apply its market selection criteria mechanically or
inflexibly, it generally seeks to select adult living community locations
that are non-urban with populations of no more than 100,000 people and
containing 3,000 elderly households within a 20-mile radius with an annual
income of at least $35,000, and have a regulatory climate that the Company
considers favorable toward development. The Company has found that
communities with these characteristics, so-called "secondary markets,"
generally have a receptive population of seniors who desire and can afford
the services offered in the Company's adult living communities. In
focusing on secondary markets, the Company believes it will avoid
overdevelopment to which primary markets are prone and obtain the benefit
of demographic concentrations that do not exist in yet smaller markets.
While not limiting itself to any specific geographic market, the
Company generally plans to concentrate its development projects to only a
limited number of states at any given time. This focus will allow the
Company to realize certain efficiencies in the development process and in
the management of the communities. For 1997,
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the Company anticipates that its development efforts will be focused
primarily in the State of Texas. The Company has commenced construction on
two development sites in Corpus Christi, Texas and Temple, Texas with
construction mortgage financing for up to $7 million and $7.3 million,
respectively, from Bank United. Construction has commenced on development
sites in San Angelo, Wichita Falls, El Paso and Abilene, Texas, under the
Company's $39 million development agreement with Capstone. The Company
also has obtained options to acquire three additional sites in Amarillo,
Round Rock, and Tyler, Texas and is actively negotiating with several
lenders to obtain construction financing for these sites. The Company
anticipates that it will commence construction on between 18 and 24
additional new communities in the next two years. The Company also
anticipates developing adult living communities in one or more of the
following states: Kentucky, Tennessee, Georgia, North Carolina, South
Carolina, and New Mexico.
Centralized Management. The adult living business is a highly
management intensive one. While the location of a community and its
physical layout are extremely important, another key to the success of an
adult living community lies in the ability to maximize its financial
potential through sophisticated, experienced management. Such success
requires the establishment and supervision of programs involving the
numerous facets of an adult living community, including menu planning, food
and supply purchasing, meal preparation and service, assistance with
"activities of daily living," recreational activities, social events,
health care services, housekeeping, maintenance and security. The Company's
strategy emphasizes centralized management in order to achieve operational
efficiencies and ensure consistent quality of services. The Company has
established standardized policies and procedures governing, among other
things, social activities, maintenance and housekeeping, health care
services, and food services. An annual budget is established by the
Company for each community against which performance is tested each month.
Marketing. Marketing is critical to the rent up and continued high
occupancy of a community. The Company's marketing strategy focuses on
enhancing the reputation of the Company's communities and creating
awareness of the Company and its services among potential referral sources.
The Company's experience is that satisfied residents and their families are
an important source of referrals for the Company. In addition, the Company
plans to use its common community design and its "The Grand Court"
trademarked name to promote national brand-name recognition. The Company
has recently adopted the trademarked name. Historically, adult living
communities have generally been independently owned and operated and there
has been little national brand-name recognition. The Company believes that
national recognition will be increasingly important in the adult living
business. The Company intends to continuously use its trademarked name in
its business activities, and the life of this trademark will extend for the
duration of its use. The Company considers this trademark to be a valuable
intangible intellectual property asset.
SERVICES
It is important to identify the specific tastes and needs of the
residents of an adult living community, which can vary from region to
region and from one age group to the next. Residents who are 70 years old
have different needs than those who are 85. The Company has retained a
gerontologist to insure that programs and activities are suitable for all
of the residents in a community and that they are adjusted as these
residents "age in place". Both independent and assisted-living services
will be offered at all of the Company's newly, developed communities.
Basic Service and Care Package. The Company provides four levels of
service at its adult-living communities:
Level I is Independent Living which includes three meals per day,
weekly housekeeping, activities program, 24-hour security and
transportation for shopping and medical appointments.
Level II or Catered Living offers all of the amenities of Level I in
addition to all utilities, personal laundry and daily housekeeping.
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Level III is Assisted Living, which offers three meals per day, daily
housekeeping, 24-hour security, all utilities, medication management,
activities and nurse's aides to assist the residents in daily bathing and
dressing.
Level IV is especially designed to meet the needs of our assisted
living residents who require increased assistance with the activities of
daily living. We are able to accommodate residents with walkers or
wheelchairs, or who suffer from the early stages of Alzheimer's.
Rehabilitative services such as physical and speech therapy are also
provided by licensed third party home health care providers. Each resident
can design a package of services that will be monitored by his or her own
physician.
The Company charges an average fee of $1,400 per month for Level I
services, $1,700 per month for Level II services, $2,000 per month for
Level III services, and $2,500 per month for Level IV services, but the fee
levels vary from community to community. As the residents of the
communities managed by the Company continue to age, the Company expects
that an increasing number of residents will utilize Level III and Level IV
services. The Company's internal growth plan is focused on increasing
revenue by continuing to expand the number and diversity of its tiered
additional assisted-living services and the number of residents using these
services.
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COMMUNITIES
The Company currently operates 32 adult living communities containing
4,646 units, one nursing home containing 57 beds and one residential
apartment complex, containing 237 units. One of the Company's adult living
communities contains 70 nursing home beds. The following chart sets forth
information regarding the communities operated by the Company:
OCCUPANCY
% AT
YEAR JANUARY
NUMBER OF ACQUIRED 24,
COMMUNITY (1) STATE UNITS (2) 1997
------------- ----- --------- ------- ----------
The Grand Court
Mesa Arizona 166 1997 96%(3)
The Grand Court
Phoenix Arizona 136 1991 98%
The Grand Court
Fort Myers Florida 184 1989 95%
The Grand Court
Lakeland Florida 126 1996 76%
The Grand Court
Lake Worth Florida 170 1992 91%
The Grand Court
North Miami Florida 189 1995 66%
The Grand Court
Pensacola Florida 60 1993 99%
The Grand Court I
Pompano Beach(4) Florida 72 1994 88%
The Grand Court II
Pompano Beach(4) Florida 42 1994 67%
The Grand Court
Tavares Florida 94 1995 95%
The Grand Court
Tampa Florida 164 1997 99%
The Grand Court
Belleville Illinois 76 1993 100%
The Grand Court II
Kansas City Kansas 127 1994 99%
The Grand Court
Overland Park Kansas 275 1990 99%
The Grand Court
Farmington Hills Michigan 164 1993 100%
The Grand Court
Novi Michigan 114 1994 99%
The Grand Court I
Kansas City Missouri 173 1989 96%
The Grand Court
III Kansas City(5) Missouri 217 1989 81%
600 E. 8th St. Missouri 237(6) 1990 72%
The Grand Court
Las Vegas Nevada 152 1991 97%
The Grand Court
Columbus Ohio 120 1994 93%
The Grand Court
Dayton Ohio 185 1994 100%
The Grand Court
Findlay Ohio 73 1992 88%
The Grand Court
Springfield Ohio 77 1992 86%
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OCCUPANCY
% AT
YEAR JANUARY
NUMBER OF ACQUIRED 24,
COMMUNITY(1) STATE UNITS (2) 1997
------------ ----- ----- ----- ----
The Grand Court I
Chattanooga Tennessee 143(7) 1995 90%
The Grand Court II
Chattanooga Tennessee 146 1995 100%
The Grand Court
Memphis Tennessee 197 1992 92%
The Grand Court
Morristown Tennessee 197 1996 58%
The Grand Court
Bryan Texas 180 1992 92%
The Grand Court
Longview Texas 132 1990 95%
The Grand Court
Lubbock Texas 139 1991 97%
The Grand Court I
San Antonio Texas 198 1993 96%
The Grand Court II
San Antonio Texas 57(8) 1995 93%
The Grand Court
Weatherford Texas 60 1996 72%
The Grand Court
Bristol Virginia 98 1995 100%
-----------------------
(1) In certain cases, more than one Investing Partnership owns an interest
in one Owning Partnership. There are therefore, more Investing
Partnerships than there are Owning Partnership. One of the Owning
Partnerships owns two adult living communities and another Owning
Partnership owns one adult living community and one nursing home. In
addition, the Company's communities in Pompano Beach, Florida are
adjacent to one another and are counted as one property. As a result,
there are 35 properties listed, but only 32 Owning Partnerships. In
addition, the Company has entered into contracts to acquire two adult
living communities in Sparks, Nevada containing 92 apartment units and
64 apartment units, respectively.
(2) Represents year in which an affiliate of the Company acquired the
community.
(3) The occupancy rate of The Grand Court Mesa is as of January 30, 1997.
(4) These are adjacent properties and are counted as one adult living
community.
(5) A portion of the units at The Grand Court III Kansas City are rented,
from time to time, as residential apartment units.
(6) 600 E. 8th St. is a 237-unit residential apartment complex.
(7) Grand Court I Chattanooga's unit count includes a 70-bed nursing wing.
(8) Grand Court II San Antonio is a 57-bed licensed nursing facility.
All 32 adult living communities, the nursing home and the residential
apartment complex are managed by the Company in its capacity as property
manager and, for all but one of the related Owning Partnerships, as
managing general partner. Because the Company serves as both the managing
general partner and the property manager, it receives partnership
administration fees and property management fees. As the managing general
partner of these partnerships, the Company generally has full authority and
power to act for the partnerships as if it were the sole general partner.
The Company has fiduciary responsibility for the management and
administration of these partnerships and, subject to certain matters
requiring the consent of the other partners such as a sale of the related
property, may generally, on behalf of the partnerships, borrow money,
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execute contracts, employ persons and services, compromise and settle
claims, determine and pay distributions, prepare and distribute reports,
and take such other actions which are necessary or desirable with respect
to matters affecting the partnerships or individual partners.
OPERATIONS
Corporate. Over the past ten years the Company has developed
extensive policies, procedures and systems for the operation of its adult-
living communities. The Company also has adopted a formal quality
assurance program. In connection with this program the Company requires a
minimum of two full-day annual quality assurance reviews at each community.
The entire regional staff team participates in the review which thoroughly
examines all aspects of the long-term care community from the provision of
services to the maintenance of the physical buildings. The reports
generated from these quality assurance reviews are then implemented by the
community administrator. Corporate headquarters also provides human
resources services, a licensing facilitator, and in-house accounting and
legal support systems.
Regional. The Company has eight regional administrators: one
responsible for six Florida communities and the one residential apartment
complex property operated by the Company, one responsible for two
communities in Tennessee, two in Arizona and one in Nevada, one responsible
for five communities in Texas and the one nursing home operated by the
Company, one responsible for three communities in Missouri, two communities
in Kansas, two communities in Michigan and one community in Illinois, one
responsible for four communities in Ohio and one in Tennessee, and one
responsible for one community in Florida, one in Tennessee and one in
Virginia. The Company also has a regional administrator who oversees its
food division. In addition, one regional administrator and various other
Company personnel oversee the third-party managing agents that operate
multi-family properties in which the equity interests are pledged to the
Company to secure notes owed to it. Each regional administrator is
reported to by the manager of those communities he oversees.
Community. The management team at each community consists of an
administrator, who has overall responsibility for the operation of the
community, an activity director, a marketing director and, at certain
larger communities, one or two assistant administrators. Each community
which offers assisted-living services has a staff responsible for the
assisted-living care giving services. This staff consists of a lead
resident aide, a medication room aide, certified nurse aides and trained
aides, and, in those states which so require, registered nurses. At least
one staff member is on duty 24 hours per day to respond to the emergency or
scheduled 24-hour assisted-living services available to the residents. Each
community has a kitchen staff, a housekeeping staff and a maintenance
staff. The average community currently operated by the Company has 40 to 50
full-time employees depending on the size of the community and the extent
of services provided in that community.
The Company places emphasis on diet and nutrition, as well as
preparing attractively presented healthy meals which can be enjoyed by the
residents. The Company's in-house food service program is led by a regional
administrator who reviews all menus and recipes for each community. The
menus and recipes are reviewed and changed based on consultation with the
food director and input from the residents. The Company provides special
meals for residents who require special diets.
Employees. The Company emphasizes maximizing each employee's
potential through support and training. The Company's training program is
conducted on three levels. Approximately six times per year, corporate
headquarters staff conduct training sessions for the management staff in
the areas of supervision and management skills, and caring for the needs of
an aging population. At the regional level, regional staff train the
community staff on issues such as policies, procedures and systems,
activities for the elderly, the administration and provision of specific
services, food service, maintenance, reporting systems and other
operational areas of the business. At the community level, the
administrators of each community conduct training sessions on at least a
monthly basis relating to various practical areas of care-giving at the
community. These monthly sessions cover, on an annual basis, all phases of
the community's operations, including special areas such as safety, fire
and disaster procedures, resident care, and policies and procedures.
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COMPETITION
The senior housing and health care industries are highly competitive
and the Company expects that both the independent-living business, and
assisted-living businesses in particular, will become more competitive in
the future. The Company will continue to face competition from numerous
local, regional and national providers of long-term care whose communities
and services are on either end of the senior care continuum. The Company
will compete in providing independent-living services with home health care
providers and other providers of independent-living services, primarily on
the basis of quality and cost of communities and services offered. The
Company will compete in providing assisted-living with other providers of
assisted-living services, skilled nursing communities and acute care
hospitals primarily on the bases of cost, quality of care, array of
services provided and physician referrals. The Company also will compete
with companies providing home based health care, and even family members,
based on those factors as well as the reputation, geographic location,
physical appearance of communities and family preferences. In addition,
the Company expects that as the provision of long-term care receives
increased attention, competition from new market entrants, including, in
particular, companies focused on independent and assisted-living, will
grow. Some of the Company's competitors operate on a not-for-profit basis
or as charitable organizations, while others have, or may obtain, greater
financial resources than those of the Company. However, the Company
anticipates that its most significant competition will come from other
adult living communities within the same geographic area as the Company's
communities because management's experience indicates that senior citizens
frequently elect to move into communities near their homes.
Moreover, in the implementation of the Company's expansion program,
the Company expects to face competition for the development of adult living
communities. Some of the Company's present and potential competitors are
significantly larger or have, or may obtain, greater financial resources
than those of the Company. Consequently, there can be no assurance that
the Company will not encounter increased competition in the future which
could limit its ability to attract residents or expand its business and
could have a material adverse effect on the Company's financial condition,
results of operations and prospects. In addition, if the development of
new adult living communities outpaces demand for those communities in
certain markets, such markets may become saturated. Such an oversupply of
facilities could cause the Company to experience decreased occupancy,
depressed margins and lower operating results.
COMPANY HISTORY
The predecessors of Grand Court Lifestyles, Inc. are J&B Management
Company, Leisure Centers, Inc. and their affiliates. J&B Management
Company is a private partnership founded in 1969 with a successful history
in the development and management of multi-family real estate and adult
living communities. J&B's headquarters are in Fort Lee, New Jersey and it
conducted its property development and management operations through its
affiliate, Leisure Centers, Inc., located in Boca Raton, Florida. Grand
Court Lifestyles, Inc., its subsidiaries, J&B Management Company and
Leisure Centers, Inc. and their affiliates are collectively referred to as
the "Company".
Through the 1970's and early 1980's, the Company's primary focus was
on the acquisition, development, finance and management of multi-family
properties. Senior management, collectively, has over 80 years of
experience in multi-family housing, having had interests in properties
containing approximately 20,000 apartment units located in 22 states,
primarily in the sun-belt. Beginning in the mid-1980's, the Company's sole
focus has been on the acquisition, finance and management of adult living
communities building one of the largest operating portfolios of adult
living communities in the nation, encompassing the entire spectrum of the
long-term care industry, from independent-living to assisted-living, with a
limited involvement in nursing homes. Senior management, collectively, has
over 40 years of experience in the adult living field. The Company is
ranked by the American Seniors Housing Association in the top ten owners
and managers of adult living properties and currently has ownership
interests in and manages properties in 11 states including 32 adult living
communities containing 4,646 apartment units (including 70 skilled nursing
beds), one nursing home containing 57 skilled nursing beds and one
residential apartment complex containing 237 apartment units.
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GOVERNMENT REGULATION
Regulations applicable to the Company's operations vary among the
types of communities operated by the Company and from state to state.
Independent-living communities generally do not have any licensing
requirements. Assisted-living communities are subject to less regulation
than other licensed health care providers but more regulation than
independent-living communities. However, the Company anticipates that
additional regulations and licensing requirements will likely be imposed by
the states and the federal government. Currently, California, New Jersey,
Ohio, Massachusetts, Texas and Florida require licenses to provide the
assisted-living services provided by the Company. The licensing statutes
typically establish physical plant specifications, resident care policies
and services, administration and staffing requirements, financial
requirements and emergency service procedures. The licensing process can
take from two months to one year. New Jersey requires Certificates of Need
for assisted-living communities. The Company's communities must also
comply with the requirements of the Americans With Disabilities Act and are
subject to various local building codes and other ordinances, including
fire safety codes. While the Company relies almost exclusively on private
pay residents, the Company operates a nursing home containing 57 beds and
one adult living community operated by the Company contains 70 nursing home
beds in which some residents rely on Medicaid. As a provider of services
under the Medicaid program, the Company would be subject to Medicaid
regulations designed to limit fraud and abuse, violations of which could
result in civil and criminal penalties and exclusion from participation in
the Medicaid program. Revenues derived from Medicaid comprise less than 1%
of the Company's revenues. The Company does not intend to expand its
nursing home activities and intends to pursue an exclusively "private-pay"
clientele. The Company believes it is in substantial compliance with all
applicable regulatory requirements. No actions are pending against the
Company for non-compliance with any regulatory requirement.
Under various federal, state and local environmental laws, ordinances
and regulations, a current or previous owner or operator of real property
may be held liable for the costs of removal or remediation of certain
hazardous or toxic substances, including, without limitation, asbestos-
containing materials, that could be located on, in or under such property.
Such laws and regulations often impose liability whether or not the owner
or operator knows of, or was responsible for, the presence of the hazardous
or toxic substances. The costs of any required remediation or removal of
these substances could be substantial and the liability of an owner or
operator as to any property is generally not limited under such laws and
regulations, and could exceed the property's value and the aggregate assets
of the owner or operator. The presence of these substances or failure to
remediate such substances properly may also adversely affect the owner's
ability to sell or rent the property, or to borrow using the property as
collateral. Under these laws and regulations, an owner, operator or any
entity who arranges for the disposal of hazardous or toxic substances, such
as asbestos-containing materials, at a disposal site may also be liable for
these costs, as well as certain other costs, including governmental fines
and injuries to persons or properties. As a result, the presence, with or
without the Company's knowledge, of hazardous or toxic substances at any
property held or operated by the Company could have an adverse effect on
the Company's business, operating results and financial condition.
Under the ADA, all places of public accommodation are required to meet
certain federal requirements related to access and use by disabled persons.
A number of additional Federal, state and local laws exist which also may
require modifications to existing and planned properties to create access
to the properties by disabled persons. While the Company believes that its
properties are substantially in compliance with present requirements or are
exempt therefrom, if required changes involve a greater expenditure than
anticipated or must be made on a more accelerated basis than anticipated,
additional costs would be incurred by the Company. Further legislation may
impose additional burdens or restrictions with respect to access by
disabled persons, the costs of compliance with which could be substantial.
EMPLOYEES
As of the date hereof, the Company employs approximately 1,500
persons, including 25 in the Company's corporate headquarters. None of the
Company's employees is covered by collective bargaining agreements. The
Company believes its employee relations are good.
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LEGAL PROCEEDINGS
J&B Management Company, a predecessor of the Company ("J&B Management
Company") that managed certain multi-family properties for which the United
States Department of Housing and Urban Development ("HUD") provided
mortgage insurance, was the subject of an audit and investigation by HUD
during 1990 and 1991. Pending the conclusion of the inquiry, J&B
Management Company, its partners and key employees were suspended by HUD
from the management of such multi-family properties. On April 10, 1991,
HUD and J&B Management Company entered into a Settlement Agreement which
provided, among other things, that HUD vacate the suspension retroactively.
Certain conditions were imposed in the Settlement Agreement, including that
J&B Management Company and such principals and employees not engage in the
management of HUD-insured properties for an indefinite period of time.
Pursuant to a letter agreement dated January 11, 1994, (i) J & B Management
Company agreed to reimburse various properties for certain expenses,
aggregating approximately $445,000, deemed not eligible by HUD, (ii) J & B
Management Company agreed to pay HUD's costs for the audit, and to
reimburse HUD for certain subsidy overpayments, aggregating approximately
$861,000, and (iii) all issues relating to the audit and investigation were
concluded and fully resolved.
On February 16, 1995, an investor in certain securities issued by the
Company and certain Investing Partnerships filed a lawsuit in a Wisconsin
state court against the sales representative, the broker/dealer employing
the sales representative (the "Broker"), neither of whom are affiliated
with the Company and the Company, alleging that the sales representative,
as agent of the Broker, and the Broker, as agent of the Company,
fraudulently induced the investor to purchase such securities. There are
no allegations that the Company, or its officers, directors or employees,
engaged in any improper sales practices or misrepresentations. The
plaintiffs in Bond, et. al. v. Henning, et. al., which was removed to and
---------------------------------
is currently pending before the United States District Court for the
Eastern District of Wisconsin, are seeking (i) rescission of the sale of
approximately $2.0 million of securities and (ii) unspecified damages. The
Company filed a Motion to Dismiss which, on August 21, 1996, the Magistrate
Judge recommended that the District Court deny. A notice of appeal and
objections to the Magistrate Judge's recommendation was filed by the
Company in the District Court. The Company believes the lawsuit is without
merit and is vigorously contesting the case.
The Company is involved in various lawsuits and other matters arising
in the normal course of business. In the opinion of management of the
Company, although the outcomes of these claims and suits are uncertain, in
the aggregate they should not have a material adverse effect on the
Company's financial position or results of operations. The Company
business entails an inherent risk of liability. In recent years,
participants in the long-term care industry have become subject to an
increasing number of lawsuits alleging malpractice or related legal claims,
many of which seek large amounts and result in significant legal costs.
The Company expects that from time to time it will be subject to such suits
as a result of the nature of its business. The Company currently maintains
insurance policies in amounts and with such coverage and deductibles as it
deems appropriate, based on the nature and risks of its business,
historical experience and industry standards. There can be no assurance,
however, that claims in excess of the Company's insurance coverage or
claims not covered by the Company's insurance coverage will not arise. A
successful claim against the Company not covered by, or in excess of, the
Company's insurance could have a material adverse effect on the Company's
operating results and financial condition. Claims against the Company,
regardless of their merit or eventual outcome, may also have a material
adverse effect on the Company's ability to attract residents or expand its
business and would require management to devote time to matters unrelated
to the operation of the Company's business. In addition, the Company's
insurance policies must be renewed annually, and there can be no assurance
that the Company will be able to obtain liability insurance coverage in the
future or, if available, that such coverage will be on acceptable terms.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
Name Age Position
---- --- --------
John Luciani(1) 64 Chairman of the Board and Chief
Executive Officer
Bernard M. 66 Chief Operating Officer, President
Rodin(2) and Director
John W. Luciani 44 Executive Vice President and
III Director
Paul Jawin 41 Chief Financial Officer
Dorian Luciani 41 Senior Vice President - Acquisition
and Construction
Deborah Luciani 39 Vice President - New Business
Development and Acquisitions
Edward J. Glatz 54 Vice President - Construction
Catherine V. 31 Vice President and Treasurer
Merlino
Keith Marlowe 34 Secretary
Walter 78 Director
Feldesman(1)(2)
Leslie E. 53 Director
Goodman(1)(2)
-------------------------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
JOHN LUCIANI, Chief Executive Officer and Chairman of the Board of
Directors, founded the earliest predecessor of the Company in 1969 and has
been engaged in a number of business activities and investments since 1952.
Commencing in 1960, he entered into the real estate development and
construction business, concentrating initially on the development,
construction and sale of residential high-rise apartment buildings and
single-family homes and subsequently on the acquisition and development of
multi-family rental housing complexes. Since 1986, he has concentrated on
the acquisition, development and financing of adult living communities for
the elderly. Mr. Luciani founded the earliest predecessor of the Company
with Bernard M. Rodin in 1969. Mr. Luciani was a general partner of two
Protected Partnerships, but withdrew as a general partner prior to their
filing the respective Chapter 11 Petitions.
BERNARD M. RODIN, Chief Operating Officer, President and Director, has
been engaged, since the formation of the earliest predecessor of the
Company in 1969, in the financing of property acquisitions by arranging for
the sale of partnership interests and in property management. This
activity initially focused on the Company's multi-family housing portfolio
and, since 1986, on the Company's adult living communities. Mr. Rodin is a
certified public accountant and was actively engaged in the practice of
public accounting prior to founding the earliest predecessor of the Company
with John Luciani in 1969. Mr. Rodin was a general partner of two
Protected Partnerships, but withdrew as a general partner prior to their
filing the respective Chapter 11 Petitions.
JOHN W. LUCIANI III, Executive Vice President and Director, a son of
John Luciani, joined the Company in 1975 and has since been actively
involved in the management and operation of the Company's property
portfolios, initially focusing on multi-family housing and later on the
Company's adult-living communities.
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PAUL JAWIN, Chief Financial Officer, a son-in-law of Bernard M. Rodin,
joined the Company in May 1991. His activities primarily involve the
various financial aspects of the Company's business including its debt
financing and matters involving the Company's equity and debt securities.
Mr. Jawin is an attorney and was actively engaged in a real estate/
corporate practice prior to joining the Company.
DORIAN LUCIANI, Senior Vice President - Acquisition and Construction,
a son of John Luciani, joined the Company in 1977 and was initially
involved in the acquisition, development and management of the Company's
multi-family housing portfolio. Later, Mr. Luciani focused exclusively on
the acquisition and development of the Company's adult living communities.
DEBORAH LUCIANI, Vice President - New Business Development and
Acquisitions, a daughter of John Luciani, joined the Company in January
1992. Ms. Luciani is primarily involved in new business development,
acquisitions, obtaining financing and various marketing responsibilities
for the Company's existing and new adult living communities. Prior to
joining the Company, Ms. Luciani worked for Prudential Bache Securities as
an oil futures trader from November 1988 to December 1991.
EDWARD J. GLATZ, Vice President - Construction, joined the Company in
September 1992 and has been actively involved in the design, site selection
and construction for the new "Grand Court" adult living communities.
Additionally, Mr. Glatz supervises the capital improvements of the
Company's real estate holdings. Prior to joining the Company, Mr. Glatz
performed asset management duties for Kovens Enterprises, a real estate
development company, from June 1988 until September 1992.
CATHERINE V. MERLINO, Vice President and Treasurer, joined the Company
in September 1993, and has since been actively involved in the financial
reporting and analysis needs of the Company. Prior to joining the Company,
Mrs. Merlino was a Senior Accountant from June 1989 through June 1993 and a
Supervisor from June 1993 through September 1993 at Feldman Radin & Co.,
P.C., a public accounting firm located in New York City.
KEITH MARLOWE, Secretary of the Company, joined the Company in August
1994. From 1987 through August 1994, Mr. Marlowe, an attorney, was an
associate in the tax department at the law firm of Reid & Priest LLP where
he was involved in a general transactional tax practice.
WALTER FELDESMAN, Director, has been Of Counsel to the law firm of
Baer Marks & Upham LLP since March 1993 and for more than five years prior
thereto was a partner of Summit, Rovins and Feldesman. Mr. Feldesman is
currently a Director and Chairman of the Audit Committee of Sterling
Bancorp and a Director of its subsidiary, Sterling National Bank & Trust
Co. Mr. Feldesman is a member of the Board of Advisors of the National
Institute on Financial Services for Elders, the National Academy of Elder
Law Attorneys, the American Association of Homes for the Aging, the
National Council on the Aging and American Society on Aging. He has
authored an article entitled "Long-Term Care Insurance Helps Preserve an
Estate," and a soon-to-be published work entitled the Eldercare Primer
----------------
Series.
-------
LESLIE E. GOODMAN, Director, has been the Chairman of Creol Inc., a
real estate software company, since January 1997. Until December 1996 Mr.
Goodman was the Area President for the North Jersey Region for First Union
National Bank and a Senior Executive Vice President of First Union
Corporation. From September 1990 through January 1994, he served as
President and Chief Executive Officer of First Fidelity Bank, N.A., New
Jersey. From January 1994 to December 1995, Mr. Goodman served as a Senior
Executive Vice President and a Director of First Fidelity Bank, National
Association until it was merged into First Union. From January 1990 until
December 1995, he also served as Senior Executive Vice President, member of
the Office of the Chairman and a Director of First Fidelity Bancorporation.
Mr. Goodman served as the Chairman of the New Jersey Bankers Association
from March 1995 to March 1996. He is a member of the Board of Directors
and Chairman of the Audit Committee of Wawa Inc.
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DIRECTOR COMPENSATION
The Company will pay each Director who is not an employee of the
Company $1,000 per Board meeting attended and $500 per Committee meeting
attended. All Directors are reimbursed by the Company for their out-of-
pocket expenses incurred in connection with attendance at meetings of, and
other activities related to service on, the Board of Directors or any Board
Committee.
AUDIT COMMITTEE
The Board of Directors established an Audit Committee in June 1996.
The Audit Committee is currently composed of Messrs. Rodin, Feldesman and
Goodman. The Audit Committee's duties include reviewing internal financial
information, monitoring cash flow, budget variances and credit
arrangements, reviewing the audit program of the Company, reviewing with
the Company's independent accountants the results of all audits upon their
completion, annually selecting and recommending independent accountants,
overseeing the quarterly unaudited reporting process and taking such other
action as may be necessary to assure the adequacy and integrity of all
financial information distributed by the Company.
COMPENSATION COMMITTEE
The Board of Directors established a Compensation Committee in June
1996. The Compensation Committee is currently composed of Messrs. John
Luciani, Feldesman and Goodman. The Compensation Committee recommends
compensation levels of senior management and works with senior management
on benefit and compensation programs for Company employees.
EXECUTIVE COMPENSATION
The following table shows, as to the Chief Executive Officer and each
of the four other most highly compensated executive officers information
concerning compensation accrued for services to the Company in all
capacities during the fiscal year ended January 31, 1996.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
-----------------------------------
OTHER ALL
NAME AND ANNUAL OTHER
PRINCIPAL SALARY BONUS COMPENSATION COMPENSATION
POSITION YEAR ($) ($) ($) ($)
------------ ------ --------- --------- --------------- -----------
John Luciani,
Chairman of the
Board and Chief
Executive fiscal
Officer(1) . . 1995 --- --- --- $1,450,000
Bernard M.
Rodin, Chief
Operating
Officer,
President and fiscal
Director(1) . . 1995 --- --- --- $1,450,000
John W.
Luciani, III,
Executive Vice
President and fiscal
Director . . . 1995 $315,000 --- --- ---
Dorian Luciani,
Senior Vice fiscal
President . . . 1995 $315,000 --- --- ---
Paul Jawin,
Chief Financial fiscal
Officer . . . . 1995 $289,050 --- --- ---
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------------------------
(1) Messrs. Luciani and Rodin received dividends and distributions from
the Company's predecessors but did not receive salaries. As of April
1, 1996 a salary for each of Messrs. Luciani and Rodin was established
at the rate of $600,000 per year. In the first six months of fiscal
1996, such officers also received $397,000 each as a dividend.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors established a Compensation Committee in June
1996. The Compensation Committee currently consists of Messrs. John
Luciani, Feldesman and Goodman. None of the executive officers of the
Company currently serves on the compensation committee of another entity or
on any other committee of the board of directors of another entity
performing similar functions. For a description of transactions between
the Company and members of the Compensation Committee or their affiliates,
see "Certain Transactions."
STOCK PLANS
1996 Stock Option and Performance Award Plan
The Company has adopted the 1996 Stock Option and Performance Award
Plan (the "Plan"), which authorizes the grant to officers, key employees
and directors of the Company and any parent or subsidiary of the Company of
incentive or non-qualified stock options, stock appreciation rights,
performance shares, restricted shares and performance units. Under the
Plan, directors who are not employees of the Company may not be granted
incentive stock options. The Company plans to reserve 2,500,000 shares of
Common Stock for issuance pursuant to the Plan. As of the date hereof, no
options had been granted under the Plan.
The Plan will be administered by the Board of Directors. The Board of
Directors will determine the prices and terms at which options may be
granted. Options may be exercisable in installments over the option
period, but no options may be exercised after ten years from the date of
grant. Stock appreciation rights may be granted in tandem with options or
separately.
The exercise price of any incentive stock option granted to an
eligible employee may not be less than 100% of the fair market value of the
shares underlying such option on the date of grant, unless such employee
owns more than 10% of the outstanding Common Stock or stock of any
subsidiary or parent of the Company, in which case the exercise price of
any incentive stock option may not be less than 110% of such fair market
value. No option may be exercisable more than ten years after the date of
grant and, in the case of an incentive stock option granted to an eligible
employee owning more than 10% of the outstanding Common Stock or stock of
any subsidiary or parent of the Company, no more than five years from its
date of grant. Incentive stock options are not transferable, except upon
the death of the optionee. In general, upon termination of employment of
an optionee (other than due to death or disability), all options granted to
such person which are not exercisable on the date of such termination
immediately expire, and any options that are so exercisable will expire
three months following termination of employment in the case of incentive
stock options, but not until the date the options otherwise would expire in
the case of non-qualified stock options. However, all options will be
forfeited immediately upon an optionee's termination of employment for good
cause and upon an optionee's voluntary termination of employment without
the consent of the Board of Directors.
Upon an optionee's death or termination of employment due to
disability, all options will become 100% vested and will be exercisable (i)
in the case of death, by the estate or other beneficiary of the optionee at
any time prior to the date the option otherwise would expire and (ii) in
the case of the disability of the optionee, by the optionee within one year
of the date of such termination of employment in the case of incentive
stock options, or at any time prior to the date the option otherwise would
expire in the case of non-qualified stock options.
At the time each grant of restricted shares or performance shares or
units or stock appreciation rights is made, the Board of Directors will
determine the duration of the performance or restriction period, if any,
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<PAGE>
the performance targets, if any, for earning performance shares or units,
and the times at which restrictions placed on restricted shares shall
lapse.
CERTAIN TRANSACTIONS
In the first quarter of 1996, the Selling Stockholders reorganized
their businesses by consolidating them into the Company. The Selling
Stockholders transferred all of the issued and outstanding stock of each of
16 Sub-chapter S corporations along with various other assets and
liabilities to the Company in exchange for 2,168,257 shares of the
Company's Common Stock. A partnership in which the Selling Stockholders
are the sole partners transferred to the Company substantially all of its
assets, subject to substantially all of its liabilities, in exchange for
1,084,128 shares of the Company's Common Stock. The partnership
distributed the shares received to the Selling Stockholders. Six Sub-
chapter S corporations which were wholly-owned by the Selling Stockholders
were merged into the Company. Pursuant to the mergers the shares of the
four merged companies were converted into an aggregate of 6,747,615 shares
of the Company's Common Stock. After the reorganization was complete, the
Selling Stockholders owned an aggregate of 15,000,000 shares of the
Company's Common Stock.
Prior to the reorganization discussed above, the business of the
Selling Stockholders was conducted through a partnership and various Sub-
chapter S corporations. These entities and the Company paid dividends and
other distributions to each of the Selling Stockholders of $5,495,500,
$943,000, $850,000 and $397,000 in Fiscal 1993, 1994 and 1995 and the nine
months ended October 31, 1996, respectively, exclusive of amounts reflected
as officers' compensation.
During Fiscal 1995 and the nine months ended October 31, 1996, the
Company paid to Francine Rodin, the wife of Bernard M. Rodin, the Company's
Chief Operating Officer, President and a Director, $121,876 and $118,000,
respectively, as fees for introducing to the Company broker/dealers that
have assisted the Company in the sale of limited partnership interests in
Investing Partnerships. Mrs. Rodin will receive a fee with respect to any
future sales of such limited partnership interests and other securities
offered by the Company, excluding shares of Securities offered hereby, by
such broker/dealers. During Fiscal 1995 and the nine months ended
October 31, 1996, Francine Rodin received consulting fees of $51,510 and
$49,435, respectively, in connection with coordinating the Company's travel
arrangements and marketing efforts. Mrs. Rodin is now an employee of the
Company and performs similar services.
Michele R. Jawin, the daughter of Mr. Rodin and wife of Paul Jawin,
the Company's Chief Financial Officer, is Of Counsel to Reid & Priest LLP,
which acts as securities counsel to the Company, including in connection
with this Offering.
Messrs. Luciani and Rodin, the Chairman of the Board and President of
the Company, respectively, and entities controlled by them serve as general
partners (with interests ranging between 1% and 2%) of partnerships
directly and indirectly owning multi-family properties and on account of
such general partner status have personal liability for recourse
partnership obligations and own small equity ownership interests in the
partnerships. The Company holds notes, aggregating $106.5 million, net of
deferred income, as of October 31, 1996, that are secured by the limited
partnership interests in such partnerships. These individuals have
provided personal guarantees in certain circumstances to obtain mortgage
financing for certain adult living communities operated by the Company and
for certain of the Company's Investor Note Debt and Unsecured Debt, and the
obligations thereunder may continue. The aggregate amount of such debt
personally guaranteed by Messrs. Luciani and Rodin is approximately $38.5
million and $38.5 million, respectively. In addition, Messrs. Luciani and
Rodin and certain employees will devote a portion of their time to
overseeing the third-party managers of multi-family properties and one
adult living community in which Messrs. Luciani and Rodin have financial
interests but the Company does not.
Walter Feldesman, a Director of the Company, is Of Counsel to the law
firm of Baer Marks & Upham LLP, which acts as counsel to the Company from
time to time. In addition, Mr. Feldesman is a director of Sterling
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<PAGE>
National Bank & Trust Co. which has entered into a revolving credit
agreement with the Company which permits the Company to borrow up to
$8,000,000, of which $6,271,802 is currently outstanding.
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information as of October 31,
1996, before and after giving effect to the Offering, regarding the
beneficial ownership of the Company's Common Stock by (i) each executive
officer and director of the Company, (ii) each stockholder known by the
Company to beneficially own 5% or more of such Common Stock, (iii) each
Selling Stockholder and (iv) all directors and officers as a group. Except
as otherwise indicated, the address of each beneficial holder of 5% or more
of such Common Stock is the same as the Company.
AFTER
BEFORE OFFERING OFFERING
--------------- -----------------
SHARES
BENEFICIAL OWNER NUMBER % OFFERED NUMBER %(1)
---------------- -------- --- ------- ------- ----
John Luciani.... 7,500,000 50% 250,000 7,250,000 42.4%
Bernard M. Rodin 7,500,000 50% 250,000 7,250,000 42.4%
All directors
and officers
as a group... 15,000,000 100% 500,000 14,500,000 84.8%
------------------
(1) Excluding any additional shares of Common Stock issued pursuant to the
Over-allotment Option and prior to any conversion of the Convertible
Preferred Stock into shares of Common Stock. Assuming the full
conversion of the Convertible Preferred Stock (but excluding any
additional shares of Common Stock or Convertible Preferred Stock
issued pursuant to the Over-allotment Option), the Selling
Stockholders would beneficially own 68.2% of the outstanding Common
Stock.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company's Certificate provides for 40,000,000 authorized shares of
Common Stock. The Certificate also provides for 15,000,000 authorized
shares of Preferred Stock, par value $.0001 per share (the "Preferred
Stock"). Upon completion of the Offering (excluding any additional
Securities issued pursuant to the Over-allotment Option and the exercise of
the Representative's Warrants), there will be outstanding: (a) 17,100,000
shares of Common Stock, consisting of (i) 14,500,000 shares currently owned
by the Selling Stockholders and not offered hereby; (ii) 2,100,000 shares
to be sold by the Company hereby; (iii) the 500,000 shares to be sold by
the Selling Stockholders hereby and (b) 5,000,000 shares of Preferred
Stock.
The following summary description relating to the Common Stock, and
the Preferred Stock does not purport to be complete. A description of the
Company's capital stock is contained in the Certificate, which is filed as
an exhibit to the Registration Statement of which this Prospectus forms a
part. Reference is made to such exhibit for a detailed description of the
provisions thereof summarized below.
COMMON STOCK
Holders of the Common Stock are entitled to one vote per share and,
subject to the rights of the holders of the Preferred Stock (discussed
below), to receive dividends when and as declared by the Board of
Directors, and to share ratably in the assets of the Company legally
available for distribution in the event of the liquidation, dissolution or
winding up of the Company. Holders of the Common Stock do not have
subscription, redemption or conversion rights, nor do they have any
preemptive rights. In the event the Company were to elect to sell
additional shares of its Common Stock following this Offering, investors in
this Offering would have no right to purchase such additional shares. As a
result, their percentage equity interest in the Company would be diluted.
The shares of Common Stock offered hereby will be, when issued and paid
for, fully-paid and not liable for further call or assessment. Holders of
the Common Stock do not have cumulative voting rights, which means that the
holders of more than half of the outstanding shares of Common Stock
(subject to the rights of the holders of the Preferred Stock) can elect all
of the Company's directors, if they choose to do so. In such event, the
holders of the remaining shares would not be able to elect any directors.
The Board is empowered to fill any vacancies on the Board. Except as
otherwise required by the Delaware Law, all stockholder action is taken by
vote of a majority of the outstanding shares of Common Stock voting as a
single class present at a meeting of stockholders at which a quorum
(consisting of a majority of the outstanding shares of the Company's Common
Stock) is present in person or by proxy.
PREFERRED STOCK
The Company is authorized by the Certificate to issue a maximum of
15,000,000 shares of Preferred Stock, in one or more series and containing
such rights, privileges and limitations, including voting rights,
conversion privileges and/or redemption rights, as may, from time to time,
be determined by the Board of Directors. Preferred Stock may be issued in
the future in connection with acquisitions, financings or such other
matters as the Board of Directors deems to be appropriate. In the event
that any such shares of Preferred Stock shall be issued, a Certificate of
Designation, setting forth the series of such Preferred Stock and the
relative rights, privileges and limitations with respect thereto, shall be
filed with the Secretary of State of the State of Delaware. The effect of
such Preferred Stock is that the Company's Board of Directors alone, within
the bounds and subject to the federal securities laws and the Delaware Law,
may be able to authorize the issuance of Preferred Stock which could have
the effect of delaying, deferring or preventing a change in control of the
Company without further action by the stockholders and may adversely affect
the voting and other rights of holders of Common Stock. The issuance of
Preferred Stock with voting and conversion rights may also adversely affect
the voting power of the holders of Common Stock, including the loss of
voting control to others.
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CONVERTIBLE PREFERRED STOCK
The issuance of up to 6,250,000 shares of Convertible Preferred Stock
has been authorized by resolutions adopted by the Board of Directors and
set forth in a Certificate of Designation, Preferences and Rights of %
Senior Convertible Redeemable Preferred Stock filed with the Secretary of
State of the State of Delaware, which contains the designations, rights,
powers, preferences, qualifications and limitations of the Convertible
Preferred Stock. Upon issuance, the shares of Convertible Preferred Stock
offered hereby will be fully paid and non-assessable.
DIVIDENDS. The holders of the Convertible Preferred Stock are
entitled to receive, out of funds legally available therefor, cumulative
dividends at the rate of $.85 per share per annum, payable quarterly on the
last business day of January, April, July and October of each year,
commencing April 30, 1997 (each a "Dividend Payment Date"), to the holders
of record as of a date, not more than 60 days prior to the Dividend Payment
Date, as may be fixed by the Board of Directors. Dividends accrue from the
first day of the year in which such dividend may be payable, except with
respect to the first quarterly dividend which shall accrue from the date of
initial issuance of the Convertible Preferred Stock.
Dividends on the Convertible Preferred Stock will accrue whether or
not the Company has earnings, whether or not there are funds legally
available for the payment of such dividends and whether or not such
dividends are declared. Dividends accumulate to the extent they are not
paid on the Dividend Payment Date to which they relate. Accumulated unpaid
dividends will not bear interest. Under Delaware Law, the Company may
declare and pay dividends or make other distributions on its stock only out
of surplus, as defined in the Delaware Law or, in case there shall be no
such surplus, out of net profits for the fiscal year in which the dividend
is declared and/or the preceding fiscal year. The Company intends to pay
quarterly dividends out of available net profits or surplus. On October
31, 1996, the Company had available surplus of approximately $31 million
(or approximately $93 million after giving effect to this Offering). There
were no net profits for the current fiscal year, and $5.8 million of net
profits for Fiscal 1995. The payment of dividends and any future operating
losses will reduce such surplus of the Company, and reduce or eliminate net
profits, which may adversely affect the ability of the Company to continue
to pay dividends on the Convertible Preferred Stock. In addition, no
dividends or distributions may be declared, paid or made if the Company is
or would be rendered insolvent or in default under the terms of senior
securities by virtue of such dividend or distribution.
No dividends may be paid on any shares of capital stock ranking junior
to the Convertible Preferred Stock (including the Common Stock) unless and
until all accumulated and unpaid dividends on the Convertible Preferred
Stock have been declared and paid in full.
CONVERSION. At the election of the holder thereof, each share of
Convertible Preferred Stock will be convertible into Common Stock at any
time on or after the date of issuance and prior to redemption. The number
of shares of Common Stock to which a holder of Convertible Preferred Stock
will be entitled upon conversion is the product obtained by multiplying the
number of shares to be converted by the Conversion Rate. The "Conversion
Rate" is determined by dividing $10.00 [the initial offering price per
share of Common Stock] by $12.00 [120% of the initial offering price per
share of Common Stock] (the "Conversion Price"), an effective conversion
rate of approximately 0.8333 shares of Common Stock for each share of
Convertible Preferred Stock. The Conversion Price is subject to adjustment
from time to time in the event of (i) the issuance of Common Stock as a
dividend or distribution on any class of capital stock of the Company; (ii)
the combination, subdivision or reclassification of the Common Stock; (iii)
the distribution to all holders of Common Stock of evidences of the
Company's indebtedness or assets (including securities, but excluding cash
dividends or distributions paid out of earned surplus); or (iv) the sale of
Common Stock at a price, or the issuance of options, warrants or
convertible securities with an exercise or conversion price per share, less
than the lower of the then current Conversion Price or the then current
market price of the Common Stock (except upon (a) exercise of the
Representative's Warrants or (b) the issuance of Common Stock or options to
employees, officers, directors, stockholders or consultants pursuant to the
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<PAGE>
Plan or any other stock plans, provided that, in the case of all such stock
plans, including the Plan, the aggregate amount of Common Stock issued
thereunder does not exceed 15% of the number of shares of Common Stock then
outstanding after giving effect to the conversion, exchange or exercise of
all securities convertible, exchangeable or exercisable for Common Stock
including the Convertible Preferred Stock then outstanding). No adjustment
in the Conversion Price will be required until cumulative adjustments
require an adjustment of at least 5% in the Conversion Price. No
fractional shares will be issued upon conversion, but any fractions will be
adjusted in cash on the basis of the then current market price of the
Common Stock. Payment of accumulated and unpaid dividends will be made
upon conversion to the extent of legally available funds. The right to
convert the Convertible Preferred Stock terminates on the date fixed for
redemption.
In case of any consolidation or merger to which the Company is a party
(other than a consolidation or merger in which the Company is the surviving
party and the Common Stock is not changed or exchanged), or in case of any
sale or conveyance of all or substantially all the property and assets of
the Company, each share of Convertible Preferred Stock then outstanding
will be convertible from and after such merger, consolidation or sale or
conveyance of property and assets into the kind and amount of shares of
stock or other securities and property receivable as a result of such
consolidation, merger, sale or conveyance by a holder of the number of
shares of Common Stock into which such share of Convertible Preferred Stock
could have been converted immediately prior to such merger, consolidation,
sale or conveyance.
OPTIONAL CASH REDEMPTION. The Company may, at its option, redeem the
Convertible Preferred Stock, in whole or in part, upon 30 days prior
written notice at any time after March , 2000 [three years after the date
of this Prospectus] at a redemption price of $10.00 per share, plus
accumulated and unpaid dividends, if the Market Price of the Common Stock
(as defined below) equals or exceeds $15.00 per share (150% of the initial
offering price per share of Common Stock) for at least 20 consecutive
trading days ending not more than 10 trading days prior to the date of the
notice of redemption. The term "Market Price" means the closing sale price
as reported by the principal securities exchange on which the Common Stock
is listed or admitted to trading, or by the Nasdaq National Market or, if
not traded thereon, the closing bid price as reported by the Nasdaq
SmallCap Market or, if not quoted thereon, the high bid price on the OTC
Bulletin Board or in the National Quotation Bureau sheet listing for the
Common Stock, or, if not listed therein, as determined in good faith by the
Board of Directors.
In addition, the Company may, at its option, redeem the Convertible
Preferred Stock in whole or in part, at any time after March , 2001 [four
years after the date of this Prospectus] at the redemption prices set forth
below, plus accumulated and unpaid dividends:
REDEMPTION PRICE
DATE OF REDEMPTION PER SHARE
------------------- --------------
March , 2001 to March , 2002 . . . . . . $
March , 2002 to March , 2003 . . . . . .
March , 2003 to March , 2004 . . . . . .
March , 2004 and thereafter . . . . . . . .
PROVISIONS RELATING TO OPTIONAL CASH REDEMPTION. Notice of redemption
must be mailed to each holder of Convertible Preferred Stock to be redeemed
at his last address as it appears upon the Company's registry books at
least 30 days prior to the date fixed for redemption (the "Redemption
Date"); provided that if the Company shall not have funds legally available
for the redemption of the shares to be redeemed on the Redemption Date, the
notice of redemption shall be null and void and the Redemption Date shall
not occur.. On and after the Redemption Date, dividends will cease to
accumulate on shares of Convertible Preferred Stock called for redemption.
On or after the Redemption Date, holders of Convertible Preferred
Stock which have been redeemed shall surrender their certificates
representing such shares to the Company at its principal place of business
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or as otherwise specified in the notice of redemption or exchange and
thereupon either (i) the redemption price of such shares shall be payable
to the order of, or (ii) the shares of Common Stock shall be issued, in the
event of conversion to Common Stock prior to the Redemption Date, to the
person whose name appears on such certificate or certificates as the owner
thereof. Holders of Convertible Preferred Stock may elect to convert such
shares into Common Stock at any time prior to the Redemption Date.
From and after the Redemption Date, all rights of the holders of
redeemed shares shall cease with respect to such shares and such shares
shall not thereafter be transferred on the books of the Company or be
deemed to be outstanding for any purpose whatsoever.
VOTING RIGHTS. The holders of Convertible Preferred Stock are not
entitled to vote, except as set forth below and as provided by applicable
law. On matters subject to a vote by holders of Convertible Preferred
Stock, the holders are entitled to one vote per share.
The affirmative vote of at least a majority of the shares of
Convertible Preferred Stock, voting as a class, shall be required to
authorize, effect or validate the creation and issuance of any class or
series of stock ranking superior to or on parity with the Convertible
Preferred Stock with respect to the declaration and payment of dividends or
distribution of assets on liquidation, dissolution or winding-up. In the
event that the Company has the right to redeem the Convertible Preferred
Stock, no such vote is required if, prior to the time such class is issued,
provision is made for the redemption of all shares of Convertible Preferred
Stock and such Convertible Preferred Stock is redeemed on or prior to the
issuance of such class.
In the event that the Company fails to pay any dividends for four
consecutive quarterly dividend payment periods, the holders of the
Convertible Preferred Stock, voting separately as a class, shall be
entitled to elect one director. Such right will be terminated as of the
next annual meeting of stockholders of the Company following payment of all
accrued dividends.
LIQUIDATION. In the event of any voluntary or involuntary
liquidation, dissolution or winding-up of the Company, before any payment
or distribution of the assets of the Company (whether capital or surplus),
or the proceeds thereof, may be made or set apart for the holders of Common
Stock or any stock ranking junior to Convertible Preferred Stock, the
holders of Convertible Preferred Stock will be entitled to receive, out of
the assets of the Company available for distribution to stockholders, a
liquidating distribution of $10.00 per share, plus any accumulated and
unpaid dividends. If, upon any voluntary or involuntary liquidation,
dissolution or winding up of the Company, the assets of the Company are
insufficient to make the full payment of $10.00 per share, plus all
accumulated and unpaid dividends on the Convertible Preferred Stock and
similar payments on any other class of stock ranking on a parity with the
Convertible Preferred Stock upon liquidation, then the holders of
Convertible Preferred Stock and such other shares will share ratably in any
such distribution of the Company's assets in proportion to the full
respective distributable amounts to which they are entitled.
A consolidation or merger of the Company with or into another
corporation or sale or conveyance of all or substantially all the property
and assets of the Company will not be deemed to be a liquidation,
dissolution or winding-up, voluntary or involuntary, of the Company for the
purposes of the foregoing. See "Conversion."
MISCELLANEOUS. The Company is not subject to any mandatory redemption
or sinking fund provision with respect to the Convertible Preferred Stock.
The holders of the Convertible Preferred Stock are not entitled to
preemptive rights to subscribe for or to purchase any shares or securities
of any class which may at any time be issued, sold or offered for sale by
the Company. Shares of Convertible Preferred Stock redeemed or otherwise
reacquired by the Company shall be retired by the Company and shall be
unavailable for subsequent issuance as any class of the Company's Preferred
Stock.
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SECTION 203 OF DELAWARE LAW
Section 203 of the Delaware Law prohibits a publicly-held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction
in which the person became an interested stockholder, unless (i) prior to
the date of the business combination, the transaction is approved by the
board of directors of the corporation; (ii) upon consummation of the
transaction which resulted in the stockholder becoming an interested
stockholder, the interested stockholder owns at least 85% of the
outstanding voting stock, or (iii) on or after such date, the business
combination is approved by the board of directors and by the affirmative
vote of at least 66-2/3% of the outstanding voting stock that is not owned
by the interested stockholder. A "business combination" includes mergers,
asset sales and other transactions resulting in a financial benefit to the
stockholder. An "interested stockholder" is a person, who, together with
affiliates and associates, owns (or within three years, did own) 15% or
more of the corporation's voting stock. Section 203 may have a depressive
effect on the market price of the Common Stock and/or the Convertible
Preferred Stock.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE COMPANY'S CERTIFICATE OF
INCORPORATION AND BY-LAWS
Certain provisions of the Certificate and By-Laws of the Company
summarized in the following paragraphs will become operative immediately
prior to closing of this Offering and may be deemed to have an anti-
takeover effect and may delay or prevent a tender offer or takeover attempt
that a stockholder might consider in its best interest, including those
attempts that might result in a premium over the market price for the
shares held by stockholders. These provisions may have a depressive effect
on the market price of the Common Stock and/or the Convertible Preferred
Stock.
SPECIAL MEETING OF STOCKHOLDERS. The Certificate provides that
special meetings of stockholders of the Company may be called only by the
Board of Directors. This provision will make it more difficult for
stockholders to take action opposed by the Board of Directors. This
provision of the Certificate may not be amended or repealed by the
stockholders of the Company, except with the approval of the holders of
two-thirds of the Company's outstanding Common Stock.
NO STOCKHOLDER ACTION BY WRITTEN CONSENT. The Certificate provides
that no action required or permitted to be taken at any annual or special
meeting of the stockholders of the Company may be taken without a meeting,
and the power of stockholders of the Company to consent in writing, without
a meeting, to the taking of any action is specifically denied. Such
provision limits the ability of any stockholders to take action immediately
and without prior notice to the Board of Directors. Such a limitation on a
majority stockholder's ability to act might impact such person's or
entity's decision to purchase voting securities of the Company. This
provision of the Certificate may not be amended or repealed by the
stockholders of the Company, except with the approval of the holders of
two-thirds of the Company's outstanding Common Stock.
ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND DIRECTOR
NOMINATIONS. The By-Laws provide that stockholders seeking to bring
business before an annual meeting of stockholders, or to nominate
candidates for election as directors at an annual or special meeting of
stockholders, must provide timely notice thereof in writing. To be timely,
a stockholder's notice must be delivered to, or mailed and received at, the
principal executive offices of the Company (a) in the case of an annual
meeting that is called for a date that is within 30 days before or after
the anniversary date of the immediately preceding annual meeting of
stockholders, not fewer than 60 days nor more than 90 days prior to such
anniversary date and (b) in the case of the annual meeting to be held
during the first complete fiscal year following the date of this Prospectus
and in the case of an annual meeting that is called for a date that is not
within 30 days before or after the anniversary date of the immediately
preceding annual meeting, or in the case of a special meeting of
stockholders called for the purpose of electing directors, not later than
the close of business on the tenth day following the day on which notice of
the date of the meeting was mailed or public disclosure of the date of the
meeting was made, whichever occurs first. The By-Laws also will specify
certain requirements for a stockholder's notice to be in proper written
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form. These provisions may preclude some stockholders from bringing
matters before the stockholders at an annual or special meeting or from
making nominations for directors at an annual or special meeting. As set
forth below, the By-Laws may not be amended or repealed by the stockholders
of the Company, except with the approval of holders of two-thirds of the
Company's outstanding Common Stock.
ADJOURNMENT OF MEETINGS OF STOCKHOLDERS. The By-Laws provide that
when a meeting of stockholders of the Company is convened, the presiding
officer, if directed by the Board of Directors, may adjourn the meeting, if
no quorum is present for the transaction of business or if the Board of
Directors determines that adjournment is necessary or appropriate to enable
the stockholders to consider fully information the Board of Directors
determines has not been made sufficiently or timely available to
stockholders or to otherwise effectively exercise their voting rights.
This provision will, under certain circumstances, make more difficult or
delay actions by the stockholders opposed by the Board of Directors. The
effect of such provision could be to delay the timing of a stockholders'
meeting, including in cases where stockholders have brought proposals
before the stockholders that are in opposition to those brought by the
Board of Directors and therefore may provide the Board of Directors with
additional flexibility in responding to such stockholder proposals. As set
forth below, the By-Laws may not be amended or repealed by the stockholders
of the Company, except with the approval of holders of two-thirds of the
Company's outstanding Common Stock.
AMENDMENT OF THE BY-LAWS. The Certificate provides that the By-Laws
may be amended or repealed by the Board of Directors and may not be amended
or repealed by the stockholders of the Company, except with the consent of
holders of two-thirds of the Company's outstanding Common Stock. This
provision will make it more difficult for stockholders to make changes to
the By-Laws that are opposed by the Board of Directors. This provision of
the Certificate may not be amended or repealed by the stockholders of the
Company, except with the approval of the holders of two-thirds of the
Company's outstanding Common Stock.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock and the
Convertible Preferred Stock is First Union National Bank.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this Offering, there has been no public market for securities
of the Company. No prediction can be made as to the effect, if any, that
market sales of Securities, the availability of Securities for sale or the
exercise of the Representative's Warrants will have on the market price of
the Common Stock and Convertible Preferred Stock prevailing from time to
time. Nevertheless, sales of substantial amounts of Common Stock or
Convertible Preferred Stock of the Company, or the perception that such
sales could occur, in the public market after the lapse of the restrictions
described below could adversely affect the prevailing market price and the
ability of the Company to raise equity capital in the future at a time and
price it deems appropriate.
Upon completion of the Offering, the Company will have outstanding
17,100,000 shares of Common Stock. Of these shares, 2,600,000 shares of
Common Stock, representing all of the shares sold in the Offering, will be
freely tradeable without restriction or limitation under the Securities
Act, except for shares, if any, purchased by an "affiliate" of the Company
(as defined in the rules and regulations of the Commission under the
Securities Act) which shares will be subject to the resale limitations of
Rule 144 under the Securities Act. The remaining 14,500,000 outstanding
shares are "restricted" shares within the meaning of Rule 144 (the
"Restricted Shares"). The Restricted Shares outstanding on the date hereof
were issued and sold by the Company in private transactions in reliance
upon exemptions from registration under the Securities Act and may be sold
only if they are registered under the Securities Act or unless an exemption
from registration, such as the exemption provided by Rule 144 under the
Securities Act, is available.
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In general, under Rule 144, as currently in effect, any person (or
persons whose shares are aggregated), including an affiliate, who has
beneficially owned Restricted Shares for at least a two-year period (as
computed under Rule 144) is entitled to sell within any three-month period
a number of such shares that does not exceed the greater of (i) 1% of the
then outstanding shares of Common Stock (approximately 171,000 shares after
giving effect to the Offering) and (ii) the average weekly trading volume
in the Company's Common Stock during the four calendar weeks immediately
preceding such sale. Sales under Rule 144 are also subject to certain
provisions relating to the manner and notice of sale and the availability
of current public information about the Company. A person (or persons
whose shares are aggregated) who is not deemed an affiliate of the Company
at any time during the 90 days immediately preceding a sale, and who has
beneficially owned Restricted Shares for at least a three-year period (as
computed under Rule 144), would be entitled to sell such shares under Rule
144(k) without regard to the volume limitation and other conditions
described above.
The Company and the Selling Stockholders have agreed not to, directly
or indirectly, offer, sell, transfer, pledge, assign, hypothecate or
otherwise encumber any shares of Common Stock or securities convertible
into Common Stock, whether or not owed, or otherwise dispose of any
interest in such securities under Rule 144 or otherwise for a period of 13
months following the date of this Prospectus without the prior written
consent of the Representative; provided, that issuance and exercise of
stock options under the Plan and certain restricted transfers to and by the
estate of the Selling Stockholders are permitted. The sale or issuance, or
the potential for sale or issuance, of Common Stock after such 13-month
period could have an adverse impact on the market price of the Common Stock
and Convertible Preferred Stock offered hereby. In addition, the
Representative holds the Representative's Warrants which entitle it to
purchase up to approximately 676,667 shares of the Company's Common Stock
(including approximately 416,667 shares of Common Stock to be acquired upon
conversion of the 500,000 shares of Convertible Preferred Stock which may
be acquired upon exercise of the Representative's Warrants). The
Representative's Warrants are exercisable for a period of four years,
commencing one year after their issuance. The Company has agreed that,
under certain circumstances, it will use its best efforts to register the
Representative's Warrants and/or the underlying Common Stock for sale in
the public market. The issuance of Common Stock pursuant to the exercise
of the Representative's Warrants, the sale of such Common Stock or the
potential for such issuance or sale of Common Stock could have an adverse
impact on the market price of the Common Stock and Convertible Preferred
Stock offered hereby.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of Reid & Priest LLP, counsel to the Company, the
material federal income tax consequences of acquiring, owning and disposing
of the Convertible Preferred Stock, the Common Stock and the Warrants are
as follows, subject to the qualifications set forth in the two immediately
following paragraphs.
This discussion is based upon the Internal Revenue Code of 1986, as
amended (the "Code"), Treasury Regulations, and Internal Revenue Service
(the "IRS") rulings and judicial decisions now in effect, all of which are
subject to change at any time by legislative, judicial or administrative
action; any such changes could be retroactively applied in a manner that
could adversely affect a holder of the Convertible Preferred Stock or
Common Stock. The following does not discuss all of the tax consequences
that may be relevant to a purchaser in light of particular circumstances or
to purchasers subject to special rules, such as foreign investors,
retirement trusts, and life insurance companies. No information is
provided with respect to foreign, state or local tax laws, estate or gift
tax considerations, or other tax laws that may be applicable to particular
categories of investors.
The discussion assumes that purchasers of the Convertible Preferred
Stock or Common Stock will hold the Convertible Preferred Stock or Common
Stock as a "capital asset" within the meaning of Code Section 1221.
PROSPECTIVE PURCHASERS SHOULD CONSULT THEIR TAX ADVISORS AS TO ANY FEDERAL,
STATE, LOCAL AND FOREIGN OR OTHER TAX CONSIDERATIONS RELEVANT TO THEM.
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DISTRIBUTIONS
Distributions with respect to the Convertible Preferred Stock and the
Common Stock will be treated as dividends and taxable as ordinary income to
the extent that the distributions are made out of the Company's current or
accumulated earnings and profits. To the extent that a distribution is not
made out of the Company's current or accumulated earnings and profits, the
distribution will not constitute a dividend, will not be eligible for the
dividends received deduction and will constitute a non-taxable return of
capital to the extent described below under "Non-Taxable Distributions."
The Company has advised that it had a deficit in earnings and profits as of
October 31, 1996. The Company cannot accurately determine whether such
deficit will exist as of January 31, 1997. The treatment of distributions
with respect to the Convertible Preferred Stock and Common Stock will be
determined by the Company's accumulated earnings and profits, if any, on
January 31, 1997 and its future earnings and profits.
Under certain circumstances, the operation of the conversion price
adjustment provisions of the Convertible Preferred Stock (or its non-
operation) may result in the holders of Convertible Preferred Stock (or in
some circumstances, holders of Common Stock) being deemed to have received
a constructive distribution, which may be taxable as a dividend, even
though the holders do not actually receive cash or property.
Under Code Section 305 and the Treasury regulations thereunder, if a
redemption price of preferred stock that is subject to optional redemption
by the issuer exceeds its issue price, the entire amount of the redemption
premium can be treated as being distributed to the holders of such stock if
redemption is more likely than not to occur. Such distributions would be
taxable as described above on an economic accrual basis over the period
from issuance of the preferred stock until the date the stock is most
likely to be redeemed. Because the Company does not have a redemption
option with respect to the Convertible Preferred Stock the exercise of
which would reduce the yield to the Company on such stock, the Company
intends to take the position that the redemption premium accrual rules are
not applicable with respect to the Convertible Preferred Stock.
NON-TAXABLE DISTRIBUTIONS
To the extent that distributions are received with respect to the
Common Stock and Convertible Preferred Stock in excess of such stocks'
ratable share of the Company's current or accumulated earnings and profits,
such distributions will reduce the holder's adjusted tax basis in the
shares of Convertible Preferred Stock or Common Stock held. To the extent
that such non-taxable distributions exceed the basis of the shares in
respect of which the distribution is made, the excess distribution will be
treated as proceeds from the disposition of the shares under the rules
described under "Disposition" below. Because the tax basis of the shares
is reduced by any non-taxable distributions, the holder of such shares
would incur a greater gain or less loss upon the disposition or redemption
of such shares.
TAXABLE DISTRIBUTIONS TO INDIVIDUALS
Distributions to individual holders of Convertible Preferred Stock and
Common Stock that are treated as dividends under the rules set forth above
will be taxable as ordinary income to them when received or accrued in
accordance with their method of accounting. Dividend income of individuals
(and certain closely held corporations and personal service corporations as
defined in Code Section 469(j)) may not be offset by losses or credits from
"passive activities," such as losses or credits incurred in connection with
certain rental activities or the ownership of limited partnership
interests.
TAXABLE DISTRIBUTIONS TO CORPORATIONS
Corporate stockholders will be eligible to claim a dividends-received
deduction (currently 70% of the amount of the dividend for most corporate
stockholders) with respect to distributions that are treated as dividends
on the Convertible Preferred Stock and Common Stock in calculating their
taxable income.
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Under Code Section 246(c), the dividends-received deduction will not
be available with respect to any dividend on the shares of Convertible
Preferred Stock and Common Stock if such shares have been held for 45 days
or less (or 90 days or less if the holder of the shares of Convertible
Preferred Stock received dividends with respect to the shares of
Convertible Preferred Stock which are attributable to a period or periods
aggregating in excess of 366 days). The holding period of the shares of
Common Stock and Convertible Preferred Stock for this purpose is determined
in accordance with certain specific rules set forth in Code Section 246(c),
which reduces the holding period for any period where the holder's risk of
loss, as to such stock, is diminished by certain arrangements, such as the
holding of an option to sell the same, or substantially identical,
securities.
Code Section 246A provides a further restriction on the availability
of the dividends-received deduction on the shares of Convertible Preferred
Stock and Common Stock if the shares are classified as "debt-financed
portfolio stock." The shares of Common Stock and Convertible Preferred
Stock will be classified as debt-financed portfolio stock when the holder
incurs indebtedness directly attributable to the investment in the shares
of Common Stock and Convertible Preferred Stock. In that event, the
dividends-received deduction would be reduced to take into account the
average amount of such indebtedness.
A corporate shareholder will be required to reduce its basis in shares
of the Convertible Preferred Stock and Common Stock (but not below zero) by
the amount of any "extraordinary dividend" which is not taxed because of
the dividends-received deduction if such holder is not considered to have
held such stock for more than two years before the "dividend announcement
date," within the meaning of Code Section 1059. The amount, if any, by
which such reduction exceeds the corporate shareholder's basis in such
shares will be treated as gain on the subsequent sale or disposition of the
stock. With respect to the Convertible Preferred Stock, an "extraordinary
dividend" would be a dividend that (i) equals or exceeds 5% of the holder's
adjusted basis in the Convertible Preferred Stock or 10% in the Common
Stock (treating all dividends having ex-dividends dates within an 85-day
period as a single dividend) or (ii) exceeds 20% of the holder's adjusted
basis in the stock (treating all dividends having ex-dividend dates within
a 365-day period as a single dividend). If an election is made by the
holder, under certain circumstances the fair market value of the stock as
of the day before the ex-dividend date may be substituted for the holder's
basis in applying these tests. An "extraordinary dividend" would also
include any amount treated as a dividend in the case of a redemption of the
Convertible Preferred Stock and the Common Stock that is non-pro rata as to
all shareholders, without regard to the period the holder held the stock.
Special rules apply with respect to "qualified preferred dividends."
A qualified preferred dividend is any fixed dividend payable with respect
to preferred stock which (i) provides for fixed preferred dividends payable
no less often than annually and (ii) is not in arrears as to dividends when
acquired, provided the actual rate of return as determined under Section
1059(e)(3) of the Code, on such stock does not exceed 15%. Where a
qualified preferred dividend exceeds the 5% or 20% limitation described
above, (1) the extraordinary dividend rules will not apply if the taxpayer
hold the stock for more than five years, and (2) if the taxpayer disposes
of the stock before it has been held for more than five years, the
aggregate reduction in basis will not exceed the excess of the qualified
preferred dividends paid on such stock during the period held by the
taxpayer over the qualified preferred dividends which would have been paid
during such period on the basis of the stated rate of return as determined
under Section 1059(e)(3) of the Code. The length of time that a taxpayer
is deemed to have held stock for the purposes of the extraordinary dividend
rules is determined under principles similar to those applicable for
purposes of the dividends-received deduction discussed above.
A corporate holder may be required to include in determining its
alternative minimum taxable income an amount equal to a portion of any
dividends-received deduction allowed in computing regular taxable income.
DISPOSITION
Except as described above, the holder of Convertible Preferred Stock
or Common Stock will recognize gain or loss upon the sale, exchange,
redemption, retirement or other disposition of such securities measured by
the difference between (a) the amount of cash and the fair market value of
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property received and (b) the holder's adjusted tax basis in the security
disposed of. Any gain or loss on such sale, exchange, redemption,
retirement or other disposition will be long-term capital gain provided the
holding period of the security being disposed of exceeds one year. For
corporate taxpayers, long-term capital gains are taxed at the same rate as
ordinary income. For individual taxpayers, net capital gains (the excess
of the taxpayer's net long-term capital gains over his net short-term
capital losses) are subject to a maximum tax rate of 28%. The
deductibility of capital losses are restricted and, in general, may only be
used to reduce capital gains to the extent thereof. However, individual
taxpayers may deduct $3,000 of capital losses in excess of their capital
gains. Capital losses which cannot be utilized because of the
aforementioned limitation are, for corporate taxpayers, carried back three
years and, in most circumstances, carried forward for five years; for
individual taxpayers, capital losses may only be carried forward but
without a time limitation.
OPTIONAL CASH REDEMPTION
In the event the Company exercises its right to redeem the Convertible
Preferred Stock, the surrender of the Convertible Preferred Stock for the
redemption proceeds by the holders will be treated as a sale or exchange
and the surrendering holder will recognize capital gain or loss equal to
the difference between the redemption proceeds (other than proceeds
attributable to declared but unpaid dividends, which will be taxed as
dividends as described above) and the holder's adjusted tax basis in the
Convertible Preferred Stock, provided the redemption (1) results in a
"complete termination" of the holder's stock interest in the Company
(inclusive of any Common Stock owned) under Section 302(b)(3) of the Code,
(2) is "substantially disproportionate" with respect to the holder under
Section 302(b)(2) of the Code, (3) is "not essentially equivalent to a
dividend" with respect to the holder under Section 302(b)(1) of the Code,
or (4) is from a noncorporate holder in partial liquidation of the Company
under Section 302(b)(4) of the Code. The constructive ownership rules of
the Code must be taken into consideration in determining whether any of
these tests has been met. If a redemption of the Convertible Preferred
Stock does not meet any of these tests, then the gross proceeds received
would be treated as a distribution taxable to the holder in the manner
described under "Distributions" above.
CONVERSION
Conversion of the Convertible Preferred Stock into Common Stock will
not result in the recognition of gain or loss (except with respect to cash
received in lieu of fractional shares). The holder's adjusted tax basis in
the Common Stock received upon conversion would be equal to the holder's
tax basis in the shares of Convertible Preferred Stock converted, reduced
by the portion of such basis allocable to the fractional share interest
exchanged for cash. The holding period for the Common Stock received upon
conversion would include the holding period of the Convertible Preferred
Stock converted. The payment of accumulated and unpaid dividends in
respect of Convertible Preferred Stock that is converted to Common Stock
will be taxable in accordance with the rules discussed under
"Distributions" above.
BACKUP WITHHOLDING
A holder of any of the Convertible Preferred Stock or Common Stock may
be subject to backup withholding at the rate of 31% with respect to
dividends thereon unless such holder (a) is a corporation or comes within
certain other exempt categories and, when required, demonstrates this fact,
or (b) provides a correct taxpayer identification number, certifies as to
no loss of exemption from backup withholding and otherwise complies with
applicable requirements of the backup withholding rules. Further, a holder
who does not provide the Company with a correct taxpayer identification
number may be subject to penalties imposed by the IRS in addition to the
backup withholding. Any amount paid as backup withholding will be
creditable against the holder's Federal income tax liability. Holders
should consult their tax advisors regarding their qualification for
exemption from backup withholding and the procedure for obtaining any
applicable exemptions.
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UNDERWRITING
The Underwriters named below (the "Underwriters"), for whom National
Securities Corporation is acting as representative (in such capacity, the
"Representative"), have severally agreed, subject to the terms and
conditions of the Underwriting Agreement (the "Underwriting Agreement"), to
purchase from the Company and the Selling Stockholders, and the Company and
the Selling Stockholders have agreed to sell to the Underwriters on a firm
commitment basis, the respective number of shares of Common Stock and
Convertible Preferred Stock set forth opposite their names:
Number of Number of Shares
Shares of Common of Convertible
Underwriters Stock Preferred Stock
------------ ---------------- ----------------
National Securities Corporation .
Total . . . . . . . . . . . . . . --------- ---------
2,600,000 5,000,000
========= =========
The Company will not receive any of the proceeds from the sale of
shares of Common Stock by the Selling Stockholders.
The Underwriters are committed to purchase all the shares of Common
Stock and Convertible Preferred Stock offered hereby, if any of such
Securities are purchased. Under certain circumstances, the commitments of
non-defaulting Underwriters may be increased. The Underwriting Agreement
provides that the obligations of the several Underwriters are subject to
conditions precedent specified therein.
The Company has been advised by the Representative that the
Underwriters propose initially to offer the Securities to the public at the
initial public offering prices set forth on the cover page of this
Prospectus and to certain dealers at such prices less concessions not in
excess of $ per share of Common Stock and $ per share of
Convertible Preferred Stock. Such dealers may reallow a concession not in
excess of $ per share of Common Stock and $ per share of
Convertible Preferred Stock to certain other dealers. After the
commencement of the Offering, the public offering price, concession and
reallowance may be changed by the Representative. The Representative has
informed the Company that it does not expect sales to discretionary
accounts by the Underwriters to exceed five percent of the Common Stock
offered hereby.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments that the Underwriters may be
required to make in respect thereof. The Company and the Selling
Stockholders have also agreed to pay to the Representative a non-
accountable expense allowance equal to 2% of the gross proceeds derived
from the sale of the Securities offered hereby, of which $50,000 has been
paid to date.
The Company and the Selling Stockholders have granted to the
Underwriters the Over-allotment Option, exercisable during the 45-day
period from the date of this Prospectus, to purchase from the Company up to
an additional 315,000 shares of Common Stock and up to 750,000 shares of
Convertible Preferred Stock and to purchase from the Selling Stockholders
up to an additional 75,000 shares of Common Stock at the initial public
offering price per share offered hereby, less underwriting discounts and
the non-accountable expense allowance. Such option may be exercised only
for the purpose of covering over-allotments, if any, incurred in the sale
of the Securities offered hereby. To the extent such option is exercised
in whole or in part, each Underwriter will have a firm commitment, subject
to certain conditions, to purchase the number of the additional shares of
Securities proportionate to its initial commitment. In the event and to
the extent that such over-allotment option is partially exercised in
respect of Common Stock, approximately 80% of all such shares of Common
Stock purchased shall
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<PAGE>
be purchased from the Company and approximately 20% of such
purchases shall be from the Selling Stockholders.
The Company and the Selling Stockholders have agreed not to,
directly or indirectly, offer, sell, transfer, pledge, assign,
hypothecate or otherwise encumber any shares of Common Stock or
securities convertible into Common Stock, whether or not owned,
or otherwise dispose of any interest in such securities for a
period of 13 months following the date of this Prospectus without
the prior written consent of the Representative; provided, that
issuances of shares of Common Stock or options to purchase Common
Stock under the Plan and certain restricted transfers to and by
the estate of the Selling Stockholders are permitted. An
appropriate legend shall be marked on the face of certificates
representing all such securities.
In connection with this Offering, the Company has agreed to
sell to the Representative, at a price of $.0001 per warrant, the
Representative's Warrants to purchase from the Company up to
260,000 shares of Common Stock and up to 500,000 shares of
Convertible Preferred Stock. The Representative's Warrants are
initially exercisable at a price of $16.50 per share (165% of the
initial public offering price per share of Common Stock and the
Convertible Preferred Stock, respectively) for a period of four
years, commencing one year after the date of this Prospectus and
are restricted from sale, transfer, assignment or hypothecation
for a period of 12 months from the date of this Prospectus,
except to officers of the Representative. The Representative's
Warrants provide for adjustment in the number of securities
issuable upon the exercise thereof as a result of certain
subdivisions and combinations of the Common Stock and the
Convertible Preferred Stock, respectively. The Representative's
Warrants contain anti-dilution provisions providing for the
adjustment of the exercise price and the number of shares of
Common Stock and the Convertible Preferred Stock, respectively
issuable upon exercise of the Representative's Warrants upon the
occurrence of certain events. The Representative's Warrants
grant to the holders thereof certain rights of registration under
the Securities Act of the securities issuable upon exercise
thereof.
The Company has agreed to pay, upon completion of this
Offering, to Norbert J. Zeelander the sum of $250,000, as a
finder's fee in connection with his introduction of the Company
to the Representative. Mr. Zeelander is not affiliated with the
Company, the Representative or any other member of the National
Association of Securities Dealers, Inc.
Although the Representative has been in business for over 40
years, the Representative has participated in only twelve public
offerings as an underwriter during the last five years (five
offerings in the last 12 months). In evaluating an investment in
the Company, prospective purchasers of the Securities offered
hereby should consider the Representative's limited experience.
Prior to this Offering, there has been no public market for
the Securities. Consequently, the public offering prices of the
Securities and the terms of the Convertible Preferred Stock were
determined based upon negotiations between the Company and the
Representative and do not necessarily bear any relationship to
the Company's asset value, net worth, or other established
criteria of value. Among the factors considered in determining
the price were the history of, and the prospects for, the Company
and the industry in which it competes, its past and present
operations, its past and present earnings and the trend of such
earnings, the present state of the Company's development, the
general condition of the securities markets at the time of this
Offering and the recent market prices of publicly traded common
stocks of comparable companies. There can be no assurance that
the Securities can be resold at their offering prices, if at all.
Purchasers of the Securities will be exposed to a substantial
risk of a decline in the market prices of the Securities after
the Offering, if a market develops.
The foregoing is a summary of the principal terms of the
Underwriting Agreement described above. Reference is made to a
copy of such agreement which is filed as an exhibit to the
Registration Statement of which this Prospectus is a part for a
more complete description thereof. See "Additional Information."
76
<PAGE>
LEGAL MATTERS
The validity of the issuance of the Securities offered
hereby will be passed upon for the Company by the law firm of
Reid & Priest LLP, New York, New York, as counsel to the Company
in connection with this Offering. Greenberg, Traurig, Hoffman,
Lipoff, Rosen & Quentel, New York, New York, has acted as counsel
to the Underwriters in connection with this Offering.
EXPERTS
The consolidated financial statements and financial
statement schedule of the Company as of January 31, 1995 and 1996
and for each of the three years in the period ended January 31,
1996, included in this Prospectus and Registration Statement have
been audited by Deloitte & Touche LLP, independent accountants,
as set forth in their reports thereon appearing elsewhere herein,
and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission in Washington
D.C., a Registration Statement under the Securities Act with
respect to the Securities offered hereby. This prospectus, filed
as a part of the Registration Statement, does not contain certain
information set forth in or annexed as exhibits to the
Registration Statement. For further information regarding the
Company and the Securities offered hereby, reference is made to
the Registration Statement and to the exhibits filed as a part
thereof, which may be inspected at the office of the Commission
without charge or copies of which may be obtained therefrom upon
request to the Commission and payment of the prescribed fee.
With respect to each contract, agreement or other document
referred to in this Prospectus and filed as an exhibit to the
Registration Statement, reference is made to such exhibit for a
more complete description of the matter involved.
The Registration Statement and such exhibits and schedules
may be inspected without charge at the public reference
facilities maintained by the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the following Regional
Offices of the Commission: New York Regional Office, 7 World
Trade Center, Suite 1300, New York, New York 10048, and Chicago
Regional Office, Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511. Copies of such material may
be obtained from the Public Reference Section of the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Registration Statement may also be accessed on the
World Wide Web through the Commission's Internet address at
"http://www.sec.gov."
77
<PAGE>
GRAND COURT LIFESTYLES, INC. and SUBSIDIARIES
----------
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
----------
Page
----
Independent Auditors' Report F-2
Consolidated Balance Sheets as of January 31, 1995
and 1996 (as restated) and October 31, 1996 F-3
Consolidated Statements of Operations for the Years
ended January 31, 1994, 1995 and 1996 (as restated),
the Three Months ended October 31, 1995 and 1996 and
the Nine Months ended October 31, 1995 and 1996 F-4
Consolidated Statements of Changes in Stockholders'
Equity for the Years Ended January 31, 1994, 1995 and 1996
(as restated) and the Nine Months ended October 31, 1996 F-5
Consolidated Statements of Cash Flows for the Years
Ended January 31, 1994, 1995 and 1996 (as restated)
and the Nine Months ended October 31, 1996 F-6
Notes to Consolidated Financial Statements F-7
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Grand Court Lifestyles, Inc.
Boca Raton, Florida
We have audited the accompanying consolidated balance sheets of
Grand Court Lifestyles, Inc. and subsidiaries as of January 31,
1996 and 1995 and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the
three years in the period ended January 31, 1996. These
consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Grand Court Lifestyles, Inc. and subsidiaries as of
January 31, 1996 and 1995, and the results of their operations
and their cash flows for each of the three years in the period
ended January 31, 1996 in conformity with generally accepted
accounting principles.
As discussed in Note 13, the accompanying consolidated financial
statements have been restated.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
New York, New York
April 26, 1996, except for Notes 12c
and 13, as to which the date is February 3, 1997.
F-2
<PAGE>
GRAND COURT LIFESTYLES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, except per share data)
----------------------------------------------------------------
January 31, October 31,
---------- -----------
(as restated) (unaudited)
1995 1996 1996
---- ---- ----
ASSETS
Cash and cash equivalents . . $10,950 $17,961 $8,860
Notes and receivables - net . 220,014 223,736 224,377
Investments in partnerships . 2,040 2,607 2,643
Other assets - net . . . . . 15,081 15,251 19,435
. ------ ------ ------
$248,085 $259,555 $255,315
Total assets . . . . . . . . ======== ======== ========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Loans and accrued interest
payable . . . . . . . . . . . $127,355 $140,094 $138,848
Notes and commissions payable 3,569 1,684 2,134
Other liabilities . . . . . . 2,000 4,018 4,364
Deferred Income . . . . . . . 84,955 79,442 78,664
------- ------- -------
Total liabilities . . . . . . 217,879 225,238 224,010
Commitments and contingencies
Stockholders' equity
Common Stock, $.10 par value-
authorized, 10,000 shares;
issued and outstanding,
9,224 shares . . . . . . . . 1 1 1
Paid-in capital . . . . . . . 30,205 34,316 54,002
Accumulated deficit . . . . . -- -- (22,698)
------ ------- -------
TOTAL STOCKHOLDERS' EQUITY 30,206 34,317 31,305
------ ------ ------
Total liabilities and $248,085 $259,555 $255,315
stockholders' equity . . . . ======== ======== ========
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
GRAND COURT LIFESTYLES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, except per share data)
----------------------------------------------------------------
Years Ended
January 31,
-----------
(as restated)
1994 1995 1996
---- ---- ----
Revenues:
Sales . . . . . . . . . . . . . $29,461 $29,000 $41,407
Deferred income earned . . . . 6,668 3,518 9,140
Interest income . . . . . . . . 13,315 9,503 12,689
Property management fees
from related parties . . . . . 4,105 4,636 4,735
1,013
Other income -------- -------- --------
53,549 46,657 68,984
-------- -------- --------
Cost and Expenses:
Cost of sales . . . . . . . . . 26,876 21,514 27,406
Selling . . . . . . . . . . . . 6,706 6,002 7,664
Interest . . . . . . . . . . . 10,991 13,610 15,808
General and administrative . . 5,226 6,450 7,871
Property Management
Expense . . . . . . . . . . . 45 238 604
Loss on Impairment of
Receivables . . . . . . . . . - - -
Officers' Compensation . . . . 1,200 1,200 1,200
Depreciation and 1,433 2,290 2,620
amortization . . . . . . . . -------- -------- --------
52,477 51,304 63,173
-------- -------- --------
Income (loss) before
provision (benefit)
for income taxes . . . . . . . 1,072 (4,647) 5,811
Provision (benefit)
for income taxes . . . . . . . - - -
-------- -------- --------
Net income (loss) . . . . . . . . 1,072 (4,647) 5,811
Pro forma income tax 429 (1,859) 2,324
provision (benefit) . . . . . . -------- -------- --------
Pro forma $643 $(2,788) $3,487
net income (loss) . . . . . . . ======== ======== ========
Pro forma earnings (loss) $.04 $(.19) $.23
per common share . . . . . . . ======== ======== ========
Pro forma weighted average 15,000 15,000 15,000
common shares used . . . . . . ======== ======== ========
Three Months Ended Nine Months Ended
October 31, October 31,
------------------ -----------------
(unaudited) (unaudited)
1995 1996 1995 1996
---- ---- ---- ----
Revenues:
Sales . . . . . . . $8,814 $8,372 $28,805 $27,208
Deferred income
earned . . . . . . 2,285 - 6,855 -
Interest income . . 2,107 3,157 9,137 11,043
Property management
fees from related
parties . . . . . 703 1,111 3,593 2,670
Other income 18 - 943 -
-------- -------- -------- --------
13,927 12,640 49,333 40,921
-------- -------- -------- --------
Cost and Expenses:
Cost of sales . . . 4,989 8,170 19,844 17,493
Selling . . . . . . 1,559 1,114 5,413 4,603
Interest . . . . . 3,745 4,215 11,636 12,017
General and
administrative . 2,077 1,998 5,419 5,687
Property Management
Expense . . . . . 76 881 320 2,791
Loss on Impairment
of Receivables . . . - 1,589 - 18,442
Officers'
Compensation . . 300 300 900 900
Depreciation and 395 809 1,886 2,539
amortization . . -------- -------- -------- --------
13,141 19,076 45,418 64,472
-------- -------- -------- --------
Income (loss) before
provision (benefit)
for income taxes . 786 (6,436) 3,915 (23,551)
Provision (benefit)
for income taxes . - - - -
-------- -------- -------- --------
Net income (loss) . . 786 (6,436) 3,915 (23,551)
Pro forma income tax 315 - 1,566 (2,093)
provision (benefit) -------- -------- -------- --------
Pro forma
net income (loss) $472 $(6,436) $2,349 $(21,458)
======== ======== ======== ========
Pro forma earnings
(loss) per common $.03 $(.43) $.17 $(1.43)
share . . . . . . . ======== ======== ======== ========
Pro forma weighted
average common
shares used . . . . . 15,000 15,000 15,000 15,000
======== ======== ======== ========
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED JANUARY 31, 1994, 1995 AND 1996 (AS RESTATED) AND
NINE MONTHS ENDED OCTOBER 31, 1996
(In Thousands)
----------------------------------------------------------------
Stockholders' equity, January 31, 1994 . . . . . 36,739
Net loss . . . . . . . . . . . . . . . . . . . (4,647)
Dividends . . . . . . . . . . . . . . . . . . . (1,886)
-------
Stockholders' equity, January 31, 1995 . . . . . 30,206
Net income . . . . . . . . . . . . . . . . . . 5,811
Dividends . . . . . . . . . . . . . . . . . . . (1,700)
-------
Stockholders' equity, January 31, 1996 . . . . . 34,317
Net loss (unaudited) . . . . . . . . . . . . . (23,551)
Capital Contribution (unaudited) . . . . . . . 21,333
Dividends (unaudited) . . . . . . . . . . . . . (794)
-------
Stockholders' equity, October 31, 1996 (unaudited)
$31,305
=======
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
----------------------------------------------------------------
Years ended January 31,
-----------------------
(as restated)
1994 1995 1996
---- ---- ----
Cash flows from operating
activities:
Net income (loss) . . . . . . $1,072 $(4,647) $5,811
------- ------- -------
Adjustments to reconcile net
income to net cash provided
by operating activities:
Amortization and
depreciation . . . . . . . 1,433 2,290 2,620
Deferred income earned . . (6,668) (3,518) (9,140)
Adjustment for changes in
assets and liabilities:
Accrued interest income on
notes receivable and
receipt of notes
receivable . . . . . . . (1,241) 174 (2,560)
(Increase) decrease in notes
and receivables . . . . . 7,945 7,223 (1,162)
Increase (decrease) in
commissions payable . . . 1,011 (501) (244)
Increase (decrease) in other
liabilities . . . . . . . (1,278) (506) 2,018
Increase (decrease) in
deferred income 4,401 632 3,627
------- ------- -------
5,603 5,794 (4,841)
------- ------- -------
Net cash provided (used)
by operating activities 6,675 1,147 970
------- ------- -------
Cash flows from investing
activities:
(Increase) decrease in (294) (591) (567)
investments . . . . . . . . ------- ------- -------
Net cash provided (used)
by investing activities . . (294) (591) (567)
------- ------- -------
Cash flows used in financing
activities:
Decrease in loans payable . . (21,629) (31,311) (39,326)
Increase in loans and accrued
interest payable . . . . . . 34,429 44,014 52,065
(Increase) decrease in other
assets . . . . . . . . . . . (2,701) (7,180) (2,790)
Payments of notes payable . . (2,609) (2,578) (1,641)
(Dividends) Contributions . . (10,991) (1,886) (1,700)
------- ------- -------
Net cash provided (used)
in financing activities (3,501) 1,059 6,608
------- ------- -------
Increase (decrease) in cash and
cash equivalents . . . . . . . 2,880 1,615 7,011
Cash and cash equivalents,
beginning of period 6,455 9,335 10,950
------- ------- -------
Cash and cash equivalents, end $9,335 $10,950 $17,961
of period . . . . . . . . . . ======= ======= =======
Supplemental information:
Interest paid . . . . . . . . $10,710 $12,914 $16,922
======= ======= =======
See Notes to Consolidated Financial Statements.
Nine Months Ended
October 31,
-----------------
(unaudited)
1995 1996
---- ----
Cash flows from operating activities:
Net income (loss) . . . . . . . . . . $3,915 $(23,551)
------- -------
Adjustments to reconcile net income
to net cash provided by operating
activities:
Amortization and depreciation . . . 1,886 2,539
Deferred income earned . . . . . . (6,855) --
Adjustment for changes in assets and
liabilities:
Accrued interest income on notes
receivable and receipt of notes
receivable . . . . . . . . . . . . (597) 118
(Increase) decrease in notes and
receivables . . . . . . . . . . . (9,353) (759)
Increase (decrease) in commissions
payable . . . . . . . . . . . . . (387) 574
Increase (decrease) in other
liabilities . . . . . . . . . . . 348 346
Increase (decrease) in deferred 2,627 (778)
income . . . . . . . . . . . . . . ------- -------
(12,331) 2,040
------- -------
Net cash provided (used) by (8,416) (21,511)
operating activities . . . . . . ------- --------
Cash flows from investing activities:
(Increase) decrease in investments . (260) (36)
------- -------
Net cash provided (used) by (260) (36)
investing activities . . . . . . ------- -------
Cash flows used in financing
activities:
Decrease in loans payable . . . . . . (30,611) (39,450)
Increase in loans and accrued
interest payable . . . . . . . . . . 42,993 38,204
(Increase) decrease in other assets . (2,727) (6,723)
Payments of notes payable . . . . . . (1,094) (124)
(Dividends) Contributions . . . . . . (1,352) 20,539
------- -------
Net cash provided (used) in 7,209 12,446
financing activities . . . . . . ------- -------
Increase (decrease) in cash and cash
equivalents . . . . . . . . . . . . . . (1,467) (9,101)
Cash and cash equivalents, beginning of 10,950 17,961
period . . . . . . . . . . . . . . . . ------- -------
Cash and cash equivalents, end of $9,483 $8,860
period . . . . . . . . . . . . . . . . ======= =======
Supplemental information:
Interest paid . . . . . . . . . . . . $11,193 $11,587
======= =======
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1994, 1995 AND 1996, THREE MONTHS ENDED
OCTOBER 31, 1996 AND THE NINE MONTHS ENDED OCTOBER 31, 1996
(Information pertaining to the period October 31, 1996 is
unaudited)
(In Thousands)
----------------------------------------------------------------
1. ORGANIZATION AND BASIS OF PRESENTATION
Grand Court Lifestyles, Inc. (the "Company") was formed
pursuant to the merger of various Sub-chapter S corporations
which were wholly-owned by the Selling Stockholders and the
transfer of certain assets by and assumption of certain
liabilities of (i) a partnership that was wholly-owned by
the Selling Stockholders and (ii) the Selling Stockholders
individually. In exchange for the transfer of such stock,
assets and liabilities, the Selling Stockholders received
shares of the Company's common stock. These transactions
are collectively called the "reorganization". All of the
assets and liabilities were transferred at historical cost.
The reorganization was effective as of April 1, 1996 and
accordingly, accumulated deficit represents results of
operations subsequent to that date. Prior to the
reorganization, the various Sub-chapter S corporations and
the partnership, which were wholly-owned by the Selling
Stockholders, were historically reported on a combined
basis. The Company, a fully integrated provider of adult
living accommodations and services, acquires, finances,
develops and manages adult living communities. As a result
of the Company's financing activities, limited partnerships
("Investing Partnerships") are formed whereby the Company
retains a 1% to 1.5% general partnership interest.
LINE OF BUSINESS - The Company's revenues have been and are
expected to continue to be primarily derived from sales of
partnership interests in partnerships it organizes to
finance the acquisition of existing adult living
communities. Investing Partnerships generally own a 98.5%
to 99% interest in partnerships that own adult living
communities ("Owning Partnerships"). The Company also
arranges for the mortgage financing of the adult living
communities and is involved in the development and
management of adult living communities. Another source of
income is interest income on notes receivable.
The adult living communities and multi-family properties are
located throughout the United States. The Company as of
January 31, 1996 manages approximately 28 adult living
communities.
UNAUDITED INTERIM FINANCIAL STATEMENTS - The Consolidated
Financial Statements as of October 31, 1996 and for the
three and nine months ended October 31, 1995 and 1996
includes, in the opinion of management, all adjustments
consisting only of normal recurring adjustments necessary
for a fair presentation of the financial position and
results of operations for these periods. The results for
interim period ended October 31, 1996 are not necessarily
indicative of the results that maybe expected for the entire
year.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS - The Company considers cash and
cash equivalents to include cash on hand, demand deposits
and highly liquid investments with maturities of three
months or less.
REVENUE RECOGNITION - Revenue from sales of interests in
partnerships, is recognized under the full accrual method of
accounting when the profit on the transaction is
determinable, that is, the collectibility of the sales price
is reasonably assured and the earnings process is virtually
complete. The profit recognized has been reduced by the
maximum reasonably possible exposure to loss. Revenue from
sales of interests in partnerships includes any syndication
fees earned by the Company. Syndication fees are deemed to
equal the expenses of the syndication. The portion of sales
revenues allocable to syndication fees were $7,654, $5,587,
$8,603 and $4,976 for the years ended January 31, 1994, 1995
and 1996 and the nine months ended October 31, 1996,
respectively. The Company determines the collectibility of
the sales price by evidence supporting the buyers'
substantial initial and continuing investment in the adult
living communities as well as other factors such as age,
location and cash flow of the underlying property.
The Company has deferred income on sales to Investing
Partnerships of interests in Owning Partnerships. The
Company has arranged for the private placement of limited
partnership interests in Investing Partnerships. Offerings
of interests in Investing Partnerships which were formed to
acquire controlling interests in Owning Partnerships which
own adult living properties ("Adult Living Owning
Partnerships") provide that the limited partners will
receive guaranteed distributions during each of the first
five years of their investment equal to between 11% to 12%
of their then paid-in capital contributions. Pursuant to
management contracts with the Adult Living Owning
Partnerships, for such five-year period, the Company is
required to pay to the Adult Living Owning Partnerships,
amounts sufficient to fund (i) any operating cash
deficiencies and (ii) any part of such guaranteed return not
paid from cash flow from the related property (which the
Adult Living Owning Partnerships distribute to the Investing
Partnerships for distribution to limited partners). The
amount
F-7
<PAGE>
of deferred income for each property is calculated at
the beginning of each fiscal year in a multi-step process.
First, based on the property's cash flow in the previous
fiscal year, the probable cash flow for the property for the
current fiscal year is determined and that amount is
initially assumed to be constant for each remaining year of
the guaranty period (the "Initial Cash Flow"). The Initial
Cash Flow is then compared to the guaranteed return
obligation for the property for each remaining year of the
guaranty period. If the Initial Cash Flow exceeds the
guaranteed return obligation for any fiscal year, the excess
Initial Cash Flow is added to the assumed Initial Cash Flow
for the following fiscal year and this adjusted Initial Cash
Flow is then compared to the guaranteed return obligation
for said following fiscal year. If the Initial Cash Flow is
less than the guaranteed return obligation for any fiscal
year, a deferred income liability is created in an amount
equal to such shortfall and no adjustment is made to the
Initial Cash Flow for the following year. Such deferred
income liability represents the maximum reasonably possible
exposure to loss as discussed above. As this process is
performed for each property every year, changes in a
property's actual cash flow will result in changes to the
assumed Initial Cash Flow utilized in this process and will
result in increases or decreases to the deferred income
liability for the property. Any deferred income liability
created in the year the interest in the Owning Partnership
is sold reduces revenues relating to the sale. The payment
of the guaranteed obligations, however, will generally not
result in the recognition of expense unless the property's
actual cash flow for the year is less than the Initial Cash
Flow for the year, as adjusted, and as a result thereof, the
amount paid by the Company in respect of the guaranteed
return obligations is greater than the amount assumed in
establishing the deferred income liability (the amount of
any such excess being recognized as property management
expense). If, however, the property's actual cash flow is
greater than the Initial Cash Flow for the year, as
adjusted, the Company's earnings will be enhanced by the
recognition of deferred income earned and, to the extent
cash flow exceeds guaranteed returns, management fees.
The Company accounts for the sales of controlling interests
in Owning Partnerships which own multi-family properties
("Multi-Family Owning Partnerships") under the installment
method. Under the installment method the gross profit is
determined at the time of sale. The revenue recorded in any
given year would equal the cash collections multiplied by
the gross profit percentage. The Company has deferred all
future income to be recognized on these transactions.
Losses on these projects are recognized immediately upon
sale.
ALLOWANCE ON NOTES RECEIVABLE - In the event that the facts
and circumstances indicate that the collectibility of a note
may be impaired, an evaluation of recoverability is
performed. If an evaluation is performed, the Company
compares the recorded value of the note to the value of the
underlying property less any encumbrances to determine if a
write-down is required for impairment. Interest income on
multi-family notes is recognized on the cash basis.
ACCOUNTING ESTIMATES - The preparation of financial
statements in accordance with generally accepted accounting
principles requires management to make significant estimates
and assumptions that affect the reported amount of assets
and liabilities at the date of the financial statements and
the reported amount of revenues and expenses during the
reported period. Actual results could differ from those
estimates.
PRINCIPLES OF CONSOLIDATION - The consolidated financial
statements include those of the Company and its
subsidiaries. The effects of all significant intercompany
transactions have been eliminated.
DEFERRED FINANCING AND DEBT EXPENSE - Costs incurred in
connection with obtaining long-term financing have been
capitalized and are amortized over the term of the
financing.
DEFERRED PROJECT COSTS - Costs incurred in connection with
the construction and development of adult living communities
the Company intends to build. Such costs include the
capitalization of interest during the construction period.
INVESTMENTS - The Company accounts for its interest in
limited partnerships under the equity method of accounting.
The Company uses this method because as the general partner
it can exercise significant influence over the operating and
financial policies of such partnerships. Under this method
the Company records its share of income and loss of the
entity as well as any distributions or contributions as an
increase or decrease to the investment account. The
carrying amount of the investments in limited partnerships
differs from the Company's underlying equity interest based
upon its stated ownership percentages. Such differences are
attributable to the disproportionate amount of money and
notes invested in the entities by the Company for its equity
interest as compared to the other investors. This
difference is being amortized over the estimated life of the
underlying partnership.
PROPERTY MANAGEMENT FEES - Property management fees earned
for services provided to related parties are recognized as
revenue when related services have been performed.
PRO FORMA INCOME TAXES - Income tax provisions at a combined
Federal and state tax rate of 40% have been provided on a
pro forma basis. The various Sub-chapter S corporations
which were either merged into or acquired by the Company and
the partnership which
F-8
<PAGE>
transferred assets to the Company were not required to pay
taxes because any taxes were the responsibility of the Seller
Stockholders who were the sole shareholders and partners of
those entities.
3. FAIR VALUE OF FINANCIAL INSTRUMENTS
In December 1991, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 107,
"Disclosure about Fair Value of Financial Instruments." The
Company is unable to determine the fair value of its notes
and receivables as such instruments do not have a ready
market. Other financial instruments are believed to be
stated at approximately their fair value.
4. NOTES AND RECEIVABLES
Notes and other receivables are from related parties and
consist of the following:
October
January 31, 31.
---------- -----------
1995 1996 1996
---- ---- ----
Notes receivable
multi-family (a)(f) $178,706 $174,025 $174,154
Notes and accrued interest
receivable adult living
(b) . . . . . . . . . . . . . -- 3,228 4,222
Other partnership
receivables (c)(f) . . . . . 46,984 52,295 52,634
Mortgages (d) . . . . . . . . 7,324 7,188 --
Accrued interest receivable . . -- -- 3,476
------- ------- -------
233,014 236,736 234,486
Less allowance for
uncollectible receivables 13,000 13,000 10,109
(e) . . . . . . . . . . . . . ------- ------- -------
$220,014 $223,736 $224,377
======= ======= =======
At January 31, 1995 and 1996 and October 31, 1996 the
carrying value of impaired notes receivable, net of deferred
income, were approximately $48,900, $48,900 and $33,800,
respectively. Interest income on impaired notes is recognized on
the cash basis. Such income recognized was $2,329, $2,272 and
$1,688 for the years ended January 31, 1995 and 1996 and the nine
months ended October 31, 1996, respectively.
(a) The Company has notes receivable from the Investing
Partnerships which were formed to acquire controlling
interests in Owning Partnerships which own multi-family
properties. The notes have maturity dates ranging from
ten to fifteen years from the date of the acquisition
of the respective partnership interests. Fifty-one of
the 169 notes (approximately $29,600) have reached their
final maturity dates and these final maturity dates have
been extended by the Company. It is the Company's
intention to collect the principal and interest payments
on the aforementioned notes from the cash flows
distributed by the related multi-family properties and
the proceeds in the event of a sale or refinancing.
The Company expects that it may need to extend maturities
of other multi-family notes. Interest income on these
notes amounted to $7,621, $6,764 and $5,586 for the years
ended January 31, 1995 and 1996 and the nine months ended
October 31, 1996, respectively.
(b) The Company has notes receivable from the Investing
Partnerships which were formed to acquire controlling
interests in Owning Partnerships which own adult living
communities. Such notes generally have interest rates
ranging from 11% to 13.875% and are due in installments
over five years from the date of acquisition of the
respective partnership interests. The notes represent
senior indebtedness of the related Investing
Partnerships, and are collateralized by the respective
interests in the Owning Partnerships. Principal and
interest payments on each note are also collateralized
by the investor notes payable to the Investing
Partnerships to which the investors are admitted.
Limited Partners are allowed to prepay their capital
contributions. These prepayments of capital
contributions do not result in the prepayment of the
related purchase notes held by the Company. Instead,
such amounts are loaned to the Company at a rate of
between 11% and 12% by the Investing Partnerships. As
a result of such loans and the crediting provisions of
the related purchase agreements, the Company records
the notes receivable corresponding to the purchase
notes net of such loans. Therefore, these prepayments
act to reduce the recorded value of the Company's note
receivables.
F-9
<PAGE>
(c) Other partnership receivables substantially represent
reimbursable expenses and advances made to the multi-
family partnerships. These amounts do not bear
interest and have no specific repayment date. It is
the Company's intention to collect these notes from the
cash flows distributed by the related multi-family
properties and the proceeds in the event of a sale or
refinancing.
(d) The mortgages bear interest at rates ranging from 8% to
9%. The mortgages are generally collateralized by a
mortgage lien on the related adult living communities.
As of October 31, 1996 all mortgage receivables were
paid in full.
(e) Allowance of Uncollectible Receivables:
Balance at Charged to Balance at
Beginning of Costs and Deductions to End of
Period Expenses Allowance Period
---------- -------- --------- ----------
YEAR ENDED
JANUARY 31, $13,000,000 -- -- $13,000,000
1995
Reserve on
Notes
Receivable
YEAR ENDED
JANUARY 31, $13,000,000 -- -- $13,000,000
1996
Reserve on
Notes
Receivable
NINE MONTHS
ENDED 13,000,000 18,442,000 $21,333,000 $10,109,000
OCTOBER 31,
1996
(UNAUDITED)
Reserve on
Notes
Receivable
The Company has recorded a loss of $18.4 million to reflect
the impairment of certain multi-family notes receivable. As
a result of the transfers by the Selling Stockholders and
one of their affiliates of certain interests which they
owned personally in various partnerships that own multi-
family properties to the Investing Partnerships which issued
such multi-family notes receivable, the recorded value of
such multi-family notes receivable and other partnership
receivables is unchanged and the Company has recorded a
contribution to capital of $21.3 million.
(f) The Multi-Family properties were typically built or acquired
with the assistance of programs administered by the United
States Department of Housing and Urban Development ("HUD")
that provide mortgage insurance, favorable financing terms
and/or rental assistance payments to the owners. As a
condition to the receipt of assistance under these and other
HUD programs, the properties must comply with various HUD
requirements including limiting rents on these properties to
amounts approved by HUD. Various proposals are pending
before Congress proposing reorganization of HUD and a
restructuring of certain of its housing assistance programs.
It is too early in the legislative process to predict which,
if any, changes might be implemented. Further, there can be
no assurance that changes in federal subsidies will not be
more restrictive than those currently proposed or that other
changes in policy will not occur. Any such changes could
have an adverse effect on the Company's ability to collect
its receivables from the partnerships owning multi-family
properties.
F-10
<PAGE>
5. OTHER ASSETS
Other assets are comprised as follows:
January 31, October 31,
----------- -----------
1995 1996 1996
---- ---- ----
Deferred loan costs . . (a) 6,910 7,994 7,326
Investment in Caton . . (b) 1,854 1,854 1,782
Unsold subscription (c) - 595 408
units . . . . . . . . .
Investment held for (d) 4,396 - -
resale . . . . . . . .
Deferred registration (e) - 833 2,021
costs . . . . . . . . .
Deferred project costs (f) - - 5,653
Other assets . . . . . 1,921 3,975 2,245
------- ------- -------
15,081 15,251 19,435
======= ======= =======
(a) Financing costs of $2,410, $3,578 and $1,724 were
capitalized during the years ended January 31, 1995, 1996
and the period ended October 31, 1996 respectively. These
costs are being amortized using the straight-line method
over periods ranging from one to ten years.
(b) The Company has approximately a 50% equity interest in Caton
Associates, a partnership which owns a mortgage loan
collateralized by interests in a cooperative apartment
building. The Company's equity interest in this partnership
totaled $466 at January 31, 1995, 1996 and October 31, 1996.
Additionally, the Company owns certain cooperative
apartments in such building recorded at $1,316 at
January 31, 1995, 1996 and October 31, 1996.
(c) The Company has capitalized $595 and $408 of remaining costs
associated with the financing of the acquisition of adult
living communities by arranging for the sale of partnership
interests, which were substantially sold at January 31, 1996
and October 31, 1996 respectively. Upon completion of these
transactions such costs will be charged to cost of sales.
(d) The Company capitalized as an investment held for resale
costs associated with the financing of the acquisition of
adult living communities. The costs associated with the
financing accrued during the fiscal year ending January 31,
1996 at which time the investment was charged to cost of
sales.
(e) The Company has capitalized costs relating to the initial
public offering. Upon the closing of the public offering,
these costs will be charged against additional paid-in
capital. However, in the event the public offering does not
close these costs will be charged against operations.
(f) The Company has capitalized costs which include interest
associated with its construction and development of
properties it intends to build. If a project is
discontinued, any deferred project costs are expensed.
F-11
<PAGE>
6. LOANS AND ACCRUED INTEREST PAYABLE
Loans payable consists of the following:
January 31, October 31,
----------- -----------
1995 1996 1996
---- ---- ----
Banks (including
mortgages) (a) (b) (c) $39,261 $41,361 $33,008
Other, principally 88,094 98,733 105,840
debentures (d) . . . . -------- -------- --------
$127,355 $140,094 $138,848
======== ======== ========
(a) The bank loans bear interest per annum at the banks' prime
rate plus 1% to 3%. The bank loans generally have terms of
at least one year, but in the event a particular bank elects
not to renew or extend the credit, the entire unpaid balance
is converted to a term loan which is payable in four to
five years. Generally the bank loans are collateralized by
the Company's entitlement to the assigned limited partner
investor notes which serve as collateral for the respective
purchase notes. The prime interest rate at January 31, 1996
and October 31, 1996 was 8.5% and 8.25% respectively.
(b) In addition to the aforementioned bank loans, the Company
had three additional loans from banks. Each of the loans
were collateralized by an assignment of the first mortgage
loans payable to the Company. Two of the loans bore
interest at rates varying from 8% to 9% per annum and were
scheduled to come due on various dates through 1996. In
March 1996, the partnerships that own these properties
refinanced two of these mortgages, which eliminated them as
obligations of the Company. The third loan bore interest at
the rate of 9.5% per annum and was scheduled to mature on
March 31, 1997. The remaining loan has been paid in full as
of October 31, 1996.
(c) The Company's debt obligations contain various covenants and
default provisions, including provisions relating to , in
some obligations, certain Investing Partnerships, Owning
Partnerships or affiliates of the Company. Certain
obligations contain provisions requiring the Company to
maintain a net worth of, in the most restrictive case,
$30,000,000, except that, under the Capstone agreements the
Company will be required to maintain a net worth in an
amount no less than 75% of the net worth of the Company
immediately after the closing of the public offering.
Certain obligations of the Company contain covenants
requiring the Company to maintain a debt for borrowed money
to consolidated net worth ratio of, in the most restrictive
case, no more than 5 to 1.
(d) Debentures are collateralized by various purchase notes and
investor notes related to multi-family property financing.
All loans mature in 1996 through 2004 and bear interest
rates of 11% to 15% per annum.
Future annual maturities, excluding interest, over the next five
years and thereafter, are as follows:
Year Ending
January 31
----------
1997 . . . . . . . . . . $37,170
1998 . . . . . . . . . . 12,887
1999 . . . . . . . . . . 29,660
2000 . . . . . . . . . . 15,426
2001 . . . . . . . . . . 17,428
Thereafter . . . . . . . 26,628
--------
139,199
Accrued interest . . . . 895
--------
$140,094
========
F-12
<PAGE>
7. OTHER LIABILITIES
a. Other liabilities include advances and certain
expenses. These amounts do not bear interest and have
no specific repayment date.
b. Unearned income of $963 and $720 was recorded for the
amount of unsubscribed partnership interests in adult
living communities financed during the year ended
January 31, 1996 and the period ended October 31, 1996,
respectively. Upon full subscription these amounts
will be recognized as income.
8. DEFERRED INCOME
Deferred income is comprised of:
January 31, October 31,
---------- -----------
1995 1996 1996
---- ---- ----
Multi-family . . . . . $69,280 $68,447 $67,689
Adult living(a) . . . . 15,675 10,995 10,975
------- ------- -------
$84,955 $79,442 $78,664
======= ======= =======
a. The aggregate amount of guaranteed return obligations
for each of the fiscal years 1996 through 2002 based on
existing management contracts is $12.4 million, $14.8
million, $13.7 million, $15.1 million, $13.3 million,
$7.4 million and $300,000, respectively. Such amounts
of guaranteed return obligation are calculated based
upon paid-in capital contributions of limited partners
as of January 31, 1996 with respect to fiscal 1996 and
remaining scheduled capital contributions (as adjusted
to reflect the refinancings) with respect to fiscal
years 1997 through 2002. Actual amounts of guaranteed
return obligations in respect of such contracts will
vary based upon the timing and amount of such capital
contributions. Furthermore, such amounts of guaranteed
return obligations are calculated without regard to the
cash flow the related properties will generate that can
be used to meet such obligations.
9. INCOME TAXES
The Company became a taxable entity as of April 1, 1996,
therefore the current and prior year tax provision (benefit)
is presented on a pro forma basis at an effective tax rate of
approximately 40%. The Company has recorded a valuation
allowance of $2,760, because it was uncertain that such
deferred tax assets in excess of deferred tax liabilities
would be realizable in future years.
Deferred income taxes reflect the net tax effects of
temporary differences between the carrying amount of assets
and liabilities for financial reporting purposes and the
amount used for income taxes purposes. The tax effects of
temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities are
presented below:
Deferred tax assets: January 31,
1996
----
Notes and receivables . . . . . . $8,920
Accrued expenses and other 1,257
liabilities . . . . . . . . . . ------
Total gross deferred tax assets . 10,177
Less valuation allowance . . . . 2,760
------
Deferred tax assets net of valuation 7,417
allowance . . . . . . . . . . . . ------
Deferred tax liabilities:
Deferred income . . . . . . . . . 4,560
Other assets . . . . . . . . . . 2,492
Investment in partnerships . . . 365
------
Total gross deferred tax 7,417
liabilities . . . . . . . . . . ------
Net deferred tax assets $ --
(liabilities) . . . . . . . . . . ======
F-13
<PAGE>
10. COMMITMENTS AND CONTINGENCIES
The Company rents office space under a lease expiring
February 1997. Annual base rent under such lease is
approximately $178. The Company entered into a ten year
lease for additional office space, commencing September 1,
1991. The annual base rent is approximately $113 and will
increase 5% each year for ten years.
On February 16, 1995, an investor in certain securities
issued by the Company and certain Investing Partnerships
filed a lawsuit in a Wisconsin state court against the sales
representative, the broker/dealer employing the sales
representative (the "Broker"), neither of whom are
affiliated with the Company and the Company alleging that
the sales representative, as agent of the Broker, and the
Broker, as agent of the Company, fraudulently induced the
investor to purchase such securities. There are no
allegations that the Company, or its officers, directors or
employees, engaged in any improper sales practices or
misrepresentations. The plaintiffs in BOND, ET AL. V.
HENNING, ET AL., which was removed to and is currently
pending before the United States District Court for the
Eastern District of Wisconsin, are seeking (i) rescission of
the sale of approximately $2.0 million of securities and
(ii) unspecified damages. The Company filed a Motion to
Dismiss which, on August 21, 1996, the Magistrate Judge
recommended that the District Court deny. A notice of
appeal and objections to the Magistrate Judge's
recommendation was filed by the Company in the District
Court. The Company believes the lawsuit is without merit
and is vigorously contesting the case.
11. RELATED PARTY TRANSACTIONS
The Company has transactions with related parties that are
unconsolidated affiliates of the Company. The Company
provides management, accounting and bookkeeping services to
such affiliates. The Company receives a monthly fee in
return for such management services rendered on behalf of
its affiliates for each of their adult living communities.
Aggregate fees for such services for the years ended
January 31, 1994, 1995 and 1996 and the nine month period
ended October 31, 1996 totaled $4,105, $4,636 and $4,735 and
$2,670, respectively. Also included in property management
fees is the Company's share of equity income from
partnerships of $206, $276 and $356 and $250 for the years
ended January 31, 1994, 1995 and 1996, and the nine month
period ended October 31, 1996.
In addition, the Company has amounts due from unconsolidated
affiliates of $413, $248 and $348 as of January 31, 1995 and
1996 and October 31, 1996, respectively.
The Company has included in Cost of Sales amounts necessary
to fund operating cash deficiencies of Owning Partnerships
pursuant to management contracts for the years ending
January 31, 1994, 1995 and 1996 and the nine month period
ending October 31, 1996 of $553, $731, $1,600 and $1,600,
respectively.
The Chairman of the Board and President of the Company and
entities controlled by them serve as general partners of
partnerships directly and indirectly owning multi-family
properties and on account of such general partner status
have personal liability for recourse partnership obligations
and own small equity ownership interests in the
partnerships. The Company held note receivables,
aggregating $106,464, net of deferred income, at October 31,
1996 that were collateralized by the equity interests in
such partnerships. These individuals have provided personal
guarantees in certain circumstances to obtain mortgage
financing for certain adult living properties operated by
the Company and for certain of the Company's Investor Note
Debt, and the obligations thereunder may continue. In
addition, such officers and certain employees will devote a
portion of their time to overseeing the third-party managers
of multi-family properties and one adult living community in
which such officers have financial interests but the Company
does not. These activities, ownership interests and general
partner interests create actual or potential conflicts of
interest on the part of these officers.
As of October 31, 1996, the Company was the managing general
partner for 28 of the 29 Owning Partnerships which owned the
29 adult living communities, one nursing home and one
residential apartment complex which the Company operates.
The Company also is the general partner for 23 of the 34
Investing Partnerships that own 98.5% to 99% partnership
interests in these Owning Partnerships. In addition, the
Company was the managing agent for all of the Company's 29
adult living communities, one nursing home and one
residential apartment complex. The Company has financed the
acquisition of adult living communities and other properties
through the sales of limited partnership interests in the
Investing Partnerships. By serving in all of these
capacities, the Company may have conflicts of interest in
that it has both a duty to act in the best interests of
partners of various partnerships, including the limited
partners of the Investing Partnerships, and the desire to
maximize earnings for the Company's stockholders in the
operation of such adult living communities, nursing home and
residential apartment complex.
F-14
<PAGE>
12. SUBSEQUENT EVENTS
a. Refinancings
In February and March of 1996, the Company arranged for the
refinancing of a number of its adult living communities
(some of which received mortgage financing for the first
time as they were previously acquired without mortgage
financing). Substantially all of the refinancing proceeds
from the mortgages over and above the transaction costs and
the existing mortgage, if any, were distributed to the
investors as a return of capital based upon the investor's
ownership percentage in the respective limited partnership.
The resultant return of capital to the investors was
approximately $43,717. As the Company has guaranteed the
investors a return based on their capital contribution the
return of a portion of the investors capital contributions
has reduced the Company's obligation under the guarantee.
This reduction, however, is offset and exceeded by the
decrease in available cash flow in the current year to fund
the guarantee, and therefore, increased the amount required
to be paid by the Company with respect to such guarantee
return obligation. Accordingly, the deferred income which
reflects the Company's guaranteed obligation has been
increased at January 31, 1996 as the negotiations for the
mortgage commitments started as early as the fourth quarter
of Fiscal 1995 and were substantially agreed to by January
31, 1996.
As a result of this refinancing the Company reflected a
reduction in assets of $6,000, a reduction in debt of $8,900
and additional interest income of $2,900 during the nine
month period ended October 31, 1996.
b. Development Agreement
The Company has entered into an agreement, dated September
18, 1996, with Capstone Capital Corporation ("Capstone") to
provide up to $39,000 for the development of up to four new
adult living communities that will be operated by the
Company pursuant to long-term leases with Capstone. The
Company also closed two construction mortgage financing
loans with Bank United for up to $7.0 million and up to $7.3
million to construct adult living communities in Corpus
Christi, Texas and Temple, Texas, respectively.
c. Capitalization
The Board of Directors and the stockholders will approve, to
be effective on the date of this Prospectus of the Company's
Common Stock, (i) the filing of a Restated Certificate of
Incorporation that would provide for, among other things,
the authorization of 40,000,000 shares of Common Stock and
15,000,000 shares of Preferred Stock and an approximate
1629.19-for-1 stock split of the issued and outstanding
Common Stock and (ii) a Stock Option Plan reserving for
issuance up to 2,500,000 shares of Common Stock pursuant to
stock options and other stock awards. The following sets
forth the pro forma effect of the stock split.
January 31 October 31
---------- ----------
1995 1996 1996
---- ---- ----
Preferred Stock, $.0001 - - -
par value; 15,000,000
shares authorized; none
issued and outstanding
Common Stock, $.01 par 150 150 150
value; authorized,
40,000,000 shares; issued
and outstanding,
15,000,000 shares
Paid-in capital 30,056 34,167 53,853
Accumulated deficit - - (22,698)
F-15
<PAGE>
13. RESTATEMENT OF FINANCIAL STATEMENTS
Subsequent to the issuance of the Company's fiscal 1995
consolidated financial statements, the Company discovered
that a mathematical error had occurred in the calculation of
the Company's initial investment in partnerships. As a
result, the Company's consolidated financial statements have
been restated from the amounts previously reported to
reflect the correction of this error. Such restatement had
the following effects for the period shown.
January 31
----------
Prior
to 1994 1994 1995 1996
------- ---- ---- ----
(Increase) Decrease (686) (328) (265) (294)
Cost of Sales
Increase (Decrease) 216 (19) 120 69
Equity Income in
Partnership
Net effect on income (470) (347) (145) (225)
(loss) before
provision (benefit)
for income taxes
F-16
<PAGE>
[Inside Back Cover]
(Photo of
exterior dock
(Photo of interior at The Grand Court
lobby of the Grand Fort Myers)
Court I, Kansas City,
Missouri)
(Photo of
women residents)
Professionally
Prepared Meals (Photo of dining area (Photo of
at The Grand Court Security guard)
Mesa, Arizona)
(Photo of
pastry chef)
(Overhead photo
dining room at The
Grand Court
Morristown,
Tennessee)
(Photo of woman on
porch at The Grand
(Photo of Court Longview,
nurse aide) Texas)
[Photo of interior (Photo of bus from
living room at The The Grand Court
Grand Court] Scheduled Lakeland, Florida)
Transportion
(Photo of housekeeper (Photo of women
making bed) involved in crafts
activity) ("The Grand Court"
logo)
Weekly
Housekeeping
Pictures of certain
adult living
communities
operated by the
Company and staff
and residents
<PAGE>
==========================================
Until , 1997 (25 days after the
commencement of this offering), all dealers
effecting transactions in the registered
securities, whether or not participating
in this distribution, may be required to
deliver a Prospectus. This is in addition
to the obligation of dealers to deliver a
Prospectus when acting as Underwriters and
with respect to their unsold allotments or
subscriptions.
---------------------
TABLE OF CONTENTS
Page
----
Prospectus Summary .. . . . . . . . . . 1
Risk Factors . . . . . . . .. . . . . 10
Use of Proceeds . . . . . . .. . . . . 22
Dividend Policy . . . . . . .. . . . . 23
Capitalization . . . . . . .. . . . . 24
Dilution . . . . . . . . . .. . . . . 25
Selected Consolidated Financial
Data . . . . . . . . .. . . . . . . 26
Management's Discussion and
Analysis of Financial Condition
and Results of Operations .. . . . . 28
Business . . . . . . . . . . . . . . 43
Management . . . . . . . . . . . . . . 59
Certain Transactions . . .. . . . . . 63
Principal and Selling Stockholders . 64
Description of Capital Stock . . . . 65
Shares Eligible for Future Sale . . . 70
Certain Federal Income
Tax Considerations . . . . . . . . . 71
Underwriting . . . . .. . . . . . . . 75
Legal Matters . . . . .. . . . . . . . 77
Experts . . . . . . . .. . . . . . . . 77
Additional Information . . . . . . . . 77
Index to Consolidated
Financial Statements . . . . . . . . F-1
---------------
No dealer, salesperson or other person
has been authorized to give any information
or to make any representations other than those
contained in this Prospectus, and, if given or
made, such information and representations must
not be relied upon as having been authorized by
the Company or any of the Selling Stock-holders.
This Prospectus does not constitute an offer to
sell or a solicitation of an offer to buy the
shares by anyone in any jurisdiction in which
such offer or solicitation is not authorized,
or in which the person making the offer or
solicitation is not qualified to do so, or
to any person to whom it is unlawful to make
such offer or solicitation. Under no circumstances
shall the delivery of this Prospectus, or any sale
made pursuant to this Prospectus, create any
implication that the information contained in this
Prospectus is correct as of any time subsequent to
the date of this Prospectus.
================================================
================================================
GRAND COURT
LIFESTYLES, INC.
5,000,000 Shares of
% Senior Convertible
Redeemable Preferred Stock
and
2,600,000 Shares
of
Common Stock
----------
PROSPECTUS
----------
NATIONAL SECURITIES
CORPORATION
March , 1997
========================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Offering
The following table sets forth the estimated expenses to be
incurred in connection with the issuance and distribution of the
Securities being registered. All expenses will be borne by the
Company, except that the Selling Stockholders will pay a 6.6% pro
rata share of the non-accountable expense allowance.
Amount
------
Securities and Exchange Commission
registration fee . . . . . . . . . $ 32,374.71
NASDAQ National Market listing fee . 50,000.00
Accounting fees and expenses . . . . 1,300,000.00*
Legal fees and expenses . . . . . . . 500,000.00*
Printing and engraving expenses . . . 100,000.00*
Non-accountable expense allowance . . 1,520,000.00*
Finders fees . . . . . . . . . . . . 250,000.00
Blue Sky fees and expenses . . . . . 21,000.00
Transfer agent and registrar fees
and expenses . . . . . . . . . . . 3,000.00*
Miscellaneous . . . . . . . . . . . . 13,625.29*
-------------
Total . . . . . . . . . . . . . $3,790,000.00
=============
---------------------
* estimated
Item 14. Indemnification of Directors and Officers
Article IX of the Company's Restated Certificate of Incorpo-
ration will provide that:
"The Corporation shall indemnify any person who was or
is a party or is threatened to be made a party to any threatened,
pending or complete action, suit or proceeding, whether civil,
criminal, administrative or investigative, or by or in the right
of the Corporation to procure judgment in its favor, by reason of
the fact that he is or was a director, officer, employee or agent
of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit
or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests
of the Corporation, in accordance with and to the full extent
permitted by statute. Expenses incurred in defending a civil or
criminal action, suit or proceeding shall be paid by the
Corporation in advance of the final disposition of such action,
suit or proceeding as authorized by the Board of Directors in the
specific case upon receipt of an undertaking by or on behalf of
the director, officer, employee or agent to repay such amount
unless it shall ultimately be determined that he is entitled to
be indemnified by the Corporation as authorized in this section.
The indemnification provided by this section shall not be deemed
exclusive of any other rights to which those seeking
indemnification may be entitled under this Restated Certificate
of Incorporation or any agreement or vote of stockholders or
disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while
holding such office, and shall continue as to a person who has
ceased to be a director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators
of such a person."
II-1
<PAGE>
Article X of the Company's By-Laws provide that:
"Any person made or threatened to be made a party to or
involved in any action, suit or proceeding, whether civil or
criminal, administrative or investigative (hereinafter,
"proceeding") by reason of the fact that he, his testator or
intestate, is or was a director, officer or employee of the
Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another
corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit
plans, shall be indemnified and held harmless by the Corporation
to the fullest extent authorized by the General Corporation Law
of the State of Delaware as the same exists or may hereafter be
amended (but in the case of any such amendment, only to the
extent that such amendment permits the Corporation to provide
broader indemnification rights than said law permitted the
Corporation to provide prior to such amendment) against all
expense, loss and liability (including, without limitation,
judgments, fines, amounts paid in settlement and reasonable
expenses, including attorneys' fees), actually and necessarily
incurred or suffered by him in connection with the defense of or
as a result of such proceeding, or in connection with any appeal
therein. The Corporation shall have the power to purchase and
maintain insurance for the indemnification of such directors,
officers and employees to the full extent permitted under the
laws of the State of Delaware from time to time in effect. Such
right of indemnification shall not be deemed exclusive of any
other rights of indemnification to which such director, officer
or employee may be entitled.
The right to indemnification conferred in this By-Law
shall be a contract right and shall include the right to be paid
by the Corporation the expenses incurred in defending any such
proceeding in advance of its final disposition; provided,
--------
however, that if the General Corporation Law of the State of
-------
Delaware requires, the payment of such expenses incurred by a
director or officer in his or her capacity as a director or
officer (and not in any other capacity in which services were or
are rendered by such person while a director or officer,
including, without limitation, service to an employee benefit
plan) in advance of the final disposition of a proceeding, shall
be made only upon delivery to the Corporation of an undertaking
by or on behalf of such director or officer, to repay all amounts
so advanced if it shall ultimately be determined that such
director or officer is not entitled to be indemnified under this
By-Law or otherwise."
Statutory
Generally, Section 145 of the General Corporation Law
of the State of Delaware authorizes Delaware corporations, under
certain circumstances, to indemnify their officers and directors
against all expenses and liabilities (including attorneys' fees)
incurred by them as a result of any suit brought against them in
their capacity as a director or an officer, if they acted in good
faith and in a manner they reasonably believed to be in or not
opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, if they had no
reasonable cause to believe their conduct was unlawful. A
director or officer may also be indemnified against expenses
incurred in connection with a suit by or in the right of the
corporation if such director or officer acted in good faith and
in a manner reasonably believed to be in or not opposed to the
best interests of the corporation, except that no indemnification
may be made without court approval if such person was adjudged
liable to the corporation.
Item 15. Recent Sales of Unregistered Securities
Since January 31, 1993, the Company issued Debentures
in six series, bonds in two series and notes in two series, with
interest rates ranging from 11% to 13.125%, and maturity dates
from 1996 to 2004 in an aggregate principal amount of
$61,192,277. Each series was issued in reliance on exemptions
from the registration requirements under the Securities Act of
1933, as amended (the "1933 Act") under Sections 3(b) and 4(2) of
such act and Regulation D promulgated thereunder to accredited
investors and up to 35 non-accredited investors. In connection
with such issuances, the Company paid commissions to qualified
broker dealers of between 10% and 15%.
II-2
<PAGE>
In connection with offerings of limited partnership
interests in limited partnerships organized to invest in adult
living communities and for which the Company has acted as general
partner, the terms of the partnership offerings provide that
limited partners will receive distributions during each of the
first five years equal to between 11% and 12% of their paid-in
capital. Pursuant to the management contracts with the
partnerships which own such communities, the Company is required
to pay such Owning Partnerships, and the Owning Partnerships
distribute to the Investing Partnerships for distribution to
limited partners, amounts sufficient to fund any part of such
return not paid from cash flow from the related property. Since
January 31, 1993, there were 20 such limited partnership
offerings for an aggregate of $197,675,000. Each such offering
was issued in reliance on exemptions from the registration
requirements under the 1933 Act under Sections 3(b) and 4(2) of
such act and Regulation D promulgated thereunder to accredited
investors and up to 35 non-accredited investors. In connection
with such issuances, the Company paid commissions to qualified
brokers and dealers of between 10% and 15%.
Two limited partnerships for which the Company is
general partner have issued limited partnership interests for, in
the aggregate, $9,250,000, the net proceeds of which have been
used to make second mortgage loans to the Company to fund
approximately 20% of the costs of developing three new adult
living communities. Each such offering was issued in reliance on
exemptions from the registration requirements under the 1933 Act
under Sections 3(b) and 4(2) of such act and Regulation D
promulgated thereunder to accredited investors and up to 35 non-
accredited investors. In connection with such issuances, the
Company paid commissions to qualified brokers and dealers of
between 10% and 15%.
In connection with the reorganization of the Company's
businesses, the Company issued 15,000,000 shares of Common Stock
to Messrs. Luciani and Rodin in exchange for assets having an
aggregate value of $33,273,000. This ofering was issued in
reliance on exemptions from the registration requirements under
the 1933 Act under Sections 3(b) and 4(2) of such act.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
**1.1 Form of Underwriting Agreement.
**1.2 Form of Registration Rights/Warrant Agreement
*2.1 Consolidation Agreement dated as of April 1,
1996 among John Luciani, Bernard M. Rodin,
J&B Management Company and the Company.
*2.1(a) First Amendment dated as of April 1, 1996 to
Consolidation Agreement dated as of April 1,
1996 among John Luciani, Bernard M. Rodin,
J&B Management Company and the Company.
*2.1(b) Second Amendment dated as of April 1, 1996 to
Consolidation Agreement dated as of April 1,
1996 among John Luciani, Bernard M. Rodin,
J&B Management Company and the Company.
2.1(c) Third Amendment dated as of April 1, 1996 to
Consolidation Agreement dated as of April 1,
1996 among John Luciani, Bernard M. Rodin,
J&B Management Company and the Company.
2.1(d) Fourth Amendment dated as of April 1, 1996 to
Consolidation Agreement dated as of April 1,
1996 among John Luciani, Bernard M. Rodin,
J&B Management Company and the Company.
*2.2(a) Merger Agreement dated as of April 1, 1996
between Leisure Centers, Inc. and the
Company.
*2.2(b) Merger Agreement dated as of April 1, 1996
between Leisure Centers Development, Inc. and
the Company.
*2.2(c) Merger Agreement dated as of April 1, 1996
between J&B Management Corp. and the Company.
*2.2(d) Merger Agreement dated as of April 1, 1996
between Wilmart Development Corp. and the
Company.
*2.2(e) Merger Agreement dated as of April 1, 1996
between Sulgrave Realty Corporation and the
Company.
*2.2(f) Merger Agreement dated as of April 1, 1996
between Riv Development Inc. and the Company.
**3.1 Form of Restated Certificate of Incorporation
of the Company.
*3.2 By-Laws of the Company.
II-3
<PAGE>
**4.1 Form of certification of designation,
preferences and rights of Convertible
Preferred Stock.
**5(a) and.8 Opinion of Reid & Priest LLP.
10.1 1996 Stock Option and Performance Award Plan.
**10.2(a) Loan Agreements dated as of November 25,
1996, by and between Leisure Centers LLC-1
and Bank United relating to financing of the
Corpus Christi, Texas property.
10.2(b) Guaranty Agreement, dated as of November 25,
1996, between the Company and Bank United
relating to financing of the Corpus Christi,
Texas property.
**10.2(c) Loan Agreement, dated as of January 29, 1997,
by and between Leisure Centers LLC-1 and Bank
United relating to financing of the Temple,
Texas property.
10.2(d) Guaranty Agreement, dated as of January 29,
1997, between the Company and Bank United
relating to the financing of the Temple,
Texas property.
10.3 Master Development Agreement dated September
18, 1996 between Capstone Capital Corp. and
the Company.
*10.4(a) Form of 12% Debenture due June 16, 2000 -
Series 1.
*10.4(b) Form of 12% Debenture due April 15, 1999 -
Series 2.
*10.4(c) Form of 11% Debenture due December 31, 1996 -
Series 3.
*10.4(d) Form of 11.5% Debenture due April 15, 2000 -
Series 4.
*10.4(e) Form of 12% Debenture due January 15, 2003 -
Series 5.
*10.4(f) Form of 12% Debenture due April 15, 2003 -
Series 6.
*10.4(g) Form of 11% Debenture due January 15, 2002 -
Series 7.
*10.4(h) Form of 11% Debenture due January 15, 2002 -
Series 8.
*10.4(i) Form of 12% Debenture due September 15, 2001
- Series 9.
*10.4(j) Form of 12% Debenture due January 15, 2004 -
Series 10.
*10.5(a) Bank Agreement dated August 14, 1990 between
The Bank of New York and the Company with
respect to 12% Debentures, Series 1.
*10.5(b) First Amendment dated as of August 21, 1992
to Bank Agreement dated August 14, 1990
between The Bank of New York and the Company
with respect to 12% Debentures, Series 1.
*10.5(c) Bank Agreement dated October 11, 1991 between
The Bank of New York and the Company with
respect to 12% Debentures, Series 2.
*10.5(d) Bank Agreement dated October 17, 1991 between
The Bank of New York and the Company with
respect to 11% Debentures, Series 3.
*10.5(e) Bank Agreement dated April 1, 1992 between
The Bank of New York and the Company with
respect to 11.5% Debentures, Series 4.
*10.5(f) Bank Agreement dated October 30, 1992 between
The Bank of New York and the Company with
respect to 12% Debentures, Series 5.
*10.5(g) Bank Agreement dated May 24, 1993 between The
Bank of New York and the Company with respect
to 12% Debentures, Series 6.
*10.5(h) Bank Agreement dated October 27, 1993 between
The Bank of New York and the Company with
respect to 11% Debentures, Series 7.
*10.5(i) First Amendment dated November 29, 1993 to
Bank Agreement dated October 27, 1993 between
The Bank of New York and the Company with
respect to 11% Debentures,Series 7.
*10.5(j) Bank Agreement dated November 29, 1993
between The Bank of New York and the Company
with respect to 11% Debentures, Series 8.
*10.5(k) Bank Agreement dated September 12, 1994
between The Bank of New York and the Company
with respect to 12% Debentures, Series 9.
*10.5(l) Bank Agreement dated July 12, 1995 between
The Bank of New York and the Company with
respect to 12% Debentures, Series 10.
*10.6(a) Form of Short-term Step-up Bond due March 15,
2001 - Series 1.
*10.6(b) Form of 12.375% Bond due April 15, 2003 -
Series 2.
*10.7(a) Bank Agreement between The Bank of New York
and the Company with respect to Short-term
Step-up Bonds - Series 1.
II-4
<PAGE>
*10.7(b) Bank Agreement between The Bank of New York
and the Company with respect to 12.375% Bonds
-Series 2.
*10.8 Revolving Credit Agreement dated as of May 7,
1985 between Sterling National Bank & Trust
Company and the Company.
*10.9 Assumption Agreement dated as of September
10, 1996 among Sterling National Bank &
Trust, the Company, Bernard M. Rodin and John
Luciani.
10.9(a) First Amendment to Assumption Agreement dated
as of September 10, 1996 among Sterling
National Bank & Trust, the Company, Bernard
M. Rodin and John Luciani.
10.10(a) Form of 13.125% Retirement Financing
Notes - III, due October 31, 2001.
10.10(b) Form of 13.125% Retirement Financing
Notes - IV, due March 31, 2002.
10.11(a) Bank Agreement dated as of September 6,
1996 between the Bank of New York and
the Company with respect to 13.125%
Retirement Financing Notes - III.
10.11(b) Bank Agreement dated as of October 22,
1996 between the Bank of New York and
the Company with respect to 13.125%
Retirement Financing Notes - IV.
12 Computation of Ratio of Earnings to Fixed
Charges and Preferred Dividends of the Company.
21 List of Subsidiaries of the Company.
*23.1 Consent of Reid & Priest LLP (included in
Exhibit 5(a) and 8 hereto).
23.2 Consent of DELOITTE & TOUCHE LLP.
*24 Power of Attorney.
27.1 Financial Data Schedule for the period ended
October 31, 1996.
*27.2 Amended Financial Data Schedule for the period
ended January 31, 1996.
-----------
* Previously filed.
** To be filed by amendment.
II-5
<PAGE>
Item 17. Undertakings
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or
sales are being made, a post-effective amendment to this
registration statement:
(i) To include any prospectus required by
Section 10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or
events arising after the effective date of the
registration statement (or the most recent post-
effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the
information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease
in volume of securities offered (if the total dollar
value of securities offered would not exceed that which
was registered) and any deviation from the estimated
maximum offering may be reflected in the form of
prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the
effective registration statement; and
(iii) To include any material information with
respect to the plan of distribution not previously
disclosed in the registration statement or any material
change to such information in the registration
statement.
(2) That, for the purpose of determining any liability
under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering
of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-
effective amendment any of the securities being registered
which remain unsold at the termination of the offering.
(4) The undersigned registrant hereby undertakes to
provide to the Representative, at the closing specified in
the Underwriting Agreement, certificates in such
denominations and registered in such names as required by
the Representative to permit prompt delivery to each
purchaser.
(5) Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to
directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the
opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such
liabilities (other than the payment by the registrant of
expenses incurred or paid by a director, officer or con-
trolling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with
the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it
is against public policy as expressed in the Securities Act
and will be governed by the final adjudication of such
issue.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the registrant has duly caused this amendment to the registration
statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the town of Fort Lee, the State of
New Jersey, on February 7, 1997.
GRAND COURT LIFESTYLES, Inc.
By: /s/ Paul Jawin
---------------------------
Chief Financial Officer
Pursuant to the requirements of the Securities Act of
1933, this amendment to the registration statement has been
signed by the following persons in the capacities and on the
dates indicated:
Signature Title Date
--------- ----- ----
/s/ John Luciani * Chairman of the February 7,
------------------------ Board 1997
John Luciani of Directors
and
Chief Executive
Officer
(Principal
Executive
Officer)
/s/ Bernard M. Rodin* President and February 7,
------------------------- Chief Operating 1997
Bernard M. Rodin Officer and
Director
(Principal
Executive
Officer)
/s/ John W. Luciani, III * Executive Vice February 7,
------------------------- President and 1997
John W. Luciani, III Director
/s/ Paul Jawin Chief Financial February 7,
-------------------------- Officer 1997
Paul Jawin (Principal
Financial
Officer and
Principal
Accounting
Officer)
/s/ Walter Feldesman * Director February 7,
-------------------------- 1997
Walter Feldesman
/s/ Leslie E. Goodman * Director February 7,
------------------------- 1997
Leslie E. Goodman
By: */s/ Paul Jawin
----------------------
Paul Jawin,
Attorney-in-Fact
II-7
<PAGE>
EXHIBIT INDEX
Exhibit Description
------- -----------
**1.1 - Form of Underwriting Agreement.
**1.2 - Form of Registration Rights/Warrant
Agreement
*2.1 - Consolidation Agreement dated as of
April 1, 1996 among John Luciani,
Bernard M. Rodin, J&B Management Company
and the Company.
*2.1(a) - First Amendment dated as of April 1,
1996 to Consolidation Agreement dated as
of April 1, 1996 among John Luciani,
Bernard M. Rodin, J&B Management Company
and the Company.
*2.1(b) - Second Amendment dated as of April 1,
1996 to Consolidation Agreement dated as
of April 1, 1996 among John Luciani,
Bernard M. Rodin, J&B Management Company
and the Company.
2.1(c) - Third Amendment dated as of April 1,
1996 to Consolidation Agreement dated as
of April 1, 1996 among John Luciani,
Bernard M. Rodin, J&B Management Company
and the Company.
2.1(d) - Fourth Amendment dated as of April 1,
1996 to Consolidation Agreement dated as
of April 1, 1996 among John Luciani,
Bernard M. Rodin, J&B Management Company
and the Company.
*2.2(a) - Merger Agreement dated as of April 1,
1996 between Leisure Centers, Inc. and
the Company.
*2.2(b) - Merger Agreement dated as of April 1,
1996 between Leisure Centers
Development, Inc. and the Company.
*2.2(c) - Merger Agreement dated as of April 1,
1996 between J&B Management Corp. and
the Company.
*2.2(d) - Merger Agreement dated as of April 1,
1996 between Wilmart Development Corp.
and the Company.
*2.2(e) - Merger Agreement dated as of April 1,
1996 between Sulgrave Realty Corporation
and the Company.
*2.2(f) - Merger Agreement dated as of April 1,
1996 between Riv Development Inc. and
the Company.
**3.1 - Form of Restated Certificate of
Incorporation of the Company.
*3.2 - By-Laws of the Company.
**4.1 - Form of certification of designation,
preferences and rights of Convertible
Preferred Stock.
**5(a)
and.8 - Opinion of Reid & Priest LLP.
10.1 - 1996 Stock Option and Performance Award
Plan.
**10.2(a) - Loan Agreements dated as of November 25,
1996, by and between Leisure Centers
LLC-1 and Bank United relating to
financing of the Corpus Christi, Texas
property.
10.2(b) - Guaranty Agreement, dated as of November
25, 1996, between the Company and Bank
United relating to financing of the
Corpus Christi, Texas property.
**10.2(c) - Loan Agreement, dated as of January 29,
1997, by and between Leisure Centers
LLC-1 and Bank United relating to
financing of the Temple, Texas property.
10.2(d) - Guaranty Agreement, dated as of January
29, 1997, between the Company and Bank
United relating to the financing of the
Temple, Texas property.
10.3 - Master Development Agreement dated
September 18, 1996 between Capstone
Capital Corp. and the
Company.
*10.4(a) - Form of 12% Debenture due June 16, 2000
- Series 1.
*10.4(b) - Form of 12% Debenture due April 15, 1999
- Series 2.
*10.4(c) - Form of 11% Debenture due December 31,
1996 - Series 3.
*10.4(d) - Form of 11.5% Debenture due April 15,
2000 - Series 4.
*10.4(e) - Form of 12% Debenture due January 15,
2003 - Series 5.
*10.4(f) - Form of 12% Debenture due April 15, 2003
- Series 6.
*10.4(g) - Form of 11% Debenture due January 15,
2002 - Series 7.
*10.4(h) - Form of 11% Debenture due January 15,
2002 - Series 8.
*10.4(i) - Form of 12% Debenture due September 15,
2001 - Series 9.
*10.4(j) - Form of 12% Debenture due January 15,
2004 - Series 10.
*10.5(a) - Bank Agreement dated August 14, 1990
between The Bank of New York and the
Company with respect to 12% Debentures,
Series 1.
*10.5(b) - First Amendment dated as of August 21,
1992 to Bank Agreement dated August 14,
1990 between The Bank of New York and
the Company with respect to 12%
Debentures, Series 1.
*10.5(c) - Bank Agreement dated October 11, 1991
between The Bank of New York and the
Company with respect to 12% Debentures,
Series 2.
*10.5(d) - Bank Agreement dated October 17, 1991
between The Bank of New York and the
Company with respect to 11% Debentures,
Series 3.
*10.5(e) - Bank Agreement dated April 1, 1992
between The Bank of New York and the
Company with respect to 11.5%
Debentures, Series 4.
*10.5(f) - Bank Agreement dated October 30, 1992
between The Bank of New York and the
Company with respect to 12% Debentures,
Series 5.
*10.5(g) - Bank Agreement dated May 24, 1993
between The Bank of New York and the
Company with respect to 12% Debentures,
Series 6.
*10.5(h) - Bank Agreement dated October 27, 1993
between The Bank of New York and the
Company with respect to 11% Debentures,
Series 7.
*10.5(i) - First Amendment dated November 29, 1993
to Bank Agreement dated October 27, 1993
between The Bank of New York and the
Company with respect to 11%
Debentures,Series 7.
*10.5(j) - Bank Agreement dated November 29, 1993
between The Bank of New York and the
Company with respect to 11% Debentures,
Series 8.
*10.5(k) - Bank Agreement dated September 12, 1994
between The Bank of New York and the
Company with respect to 12% Debentures,
Series 9.
*10.5(l) - Bank Agreement dated July 12, 1995
between The Bank of New York and the
Company with respect to 12% Debentures,
Series 10.
*10.6(a) - Form of Short-term Step-up Bond due
March 15, 2001 - Series 1.
*10.6(b) - Form of 12.375% Bond due April 15, 2003
- Series 2.
*10.7(a) - Bank Agreement between The Bank of New
York and the Company with respect to
Short-term Step-up Bonds - Series 1.
*10.7(b) - Bank Agreement between The Bank of New
York and the Company with respect to
12.375% Bonds -Series 2.
*10.8 - Revolving Credit Agreement dated as of
May 7, 1985 between Sterling National
Bank & Trust Company and the Company.
*10.9 - Assumption Agreement dated as of
September 10, 1996 among Sterling
National Bank & Trust, the Company,
Bernard M. Rodin and John Luciani.
10.9(a) - First Amendment to Assumption Agreement
dated as of September 10, 1996 among
Sterling National Bank & Trust, the
Company, Bernard M. Rodin and John
Luciani.
10.10(a) - Form of 13.125% Retirement Financing
Notes - III, due October 31, 2001.
10.10(b) - Form of 13.125% Retirement Financing
Notes - IV, due March 31, 2002.
10.11(a) - Bank Agreement dated as of September 6,
1996 between the Bank of New York and
the Company with respect to 13.125%
Retirement Financing Notes - III.
10.11(b) - Bank Agreement dated as of October 22,
1996 between the Bank of New York and
the Company with respect to 13.125%
Retirement Financing Notes - IV.
12 - Computation of Ratio of Earnings to
Fixed Charges and Preferred Dividends of
the Company.
21 - List of Subsidiaries of the Company.
*23.1 - Consent of Reid & Priest LLP (included
in Exhibit 5(a) and 8 hereto).
23.2 - Consent of DELOITTE & TOUCHE LLP.
*24 - Power of Attorney.
27.1 - Financial Data Schedule for the period
ended October 31, 1996.
*27.2 - Amended Financial Data Schedule for the
period ended January 31, 1996.
-----------
* Previously filed.
** To be filed by amendment.
Exhibit 2.1(c)
THIRD AMENDMENT TO CONSOLIDATION AGREEMENT
This Third Amendment (Third Amendment) to the
Consolidation Agreement dated as of the 1st day of April, 1996
(the "Consolidation Agreement") between Grand Court Lifestyles,
Inc., a Delaware corporation ("Grand Court"), party of the first
part, and John Luciani and Bernard M. Rodin (the "Transferring
Shareholders") and J&B Management Company, a New Jersey
partnership (the "Company"), parties of the second part, is made
as of the 1st day of April, 1996. Capitalization terms not
defined herein shall have the meanings ascribed to them in the
Consolidation Agreement.
W I T N E S S E T H:
- - - - - - - - - -
Whereas, Grand Court, the Transferring Shareholders and
the Company entered into the Consolidation Agreement;
Whereas, Schedule 2.1 of the Agreement is amended by
this Third Amendment to include additional obligations to be
assumed by Grand Court;
Accordingly, the parties hereto agree as follows:
ARTICLE II
Obligations
Schedule 2.1 is hereby amended to include immediately
after clause (i) thereof a new clause (j) as follows:
(j) any and all outstanding obligations and
liabilities of the Company to Bank Leumi
Trust Company of New York and Jericho
State Capital Corp.
ARTICLE III
Miscellaneous
Except as herein specifically amended, all of the
terms, provisions and conditions of the Consolidation Agreement
shall continue to remain in full force and effect.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Third Amendment to be duly executed as of the day and year first
above written.
/s/ John Luciani /s/ Bernard M. Rodin
---------------------------- ------------------------------
John Luciani Bernard M. Rodin
J&B MANAGEMENT COMPANY
/s/ John Luciani /s/ Bernard M. Rodin
---------------------------- ------------------------------
By: John Luciani, Partner By: Bernard M. Rodin, Partner
GRAND COURT LIFESTYLES, INC.
/s/ John Luciani /s/ Bernard M. Rodin
---------------------------- ------------------------------
By: John Luciani, President By: Bernard M. Rodin, Vice
President
Exhibit 2.1(d)
FOURTH AMENDMENT TO CONSOLIDATION AGREEMENT
This Fourth Amendment ("Fourth Amendment") to the
Consolidation Agreement dated as of the 1st day of April, 1996
(the "Consolidation Agreement") between Grand Court Lifestyles,
Inc., a Delaware corporation ("Grand Court"), party of the first
part, and John Luciani and Bernard M. Rodin (the "Transferring
Shareholders") and J&B Management Company, a New Jersey
partnership (the "Company"), parties of the second part, is made
as of the 1st day of April, 1996. Capitalization terms not
defined herein shall have the meanings ascribed to them in the
Consolidation Agreement.
W I T N E S S E T H:
- - - - - - - - - -
Whereas, Grand Court, the Transferring Shareholders and the
Company entered into the Consolidation Agreement;
Whereas, Grand Court, the Transferring Shareholders and the
Company desire to amend Schedule 1.2 of the Agreement by this
Fourth Amendment to include additional interests to be
transferred by the Transferring Shareholders to Grand Court;
Accordingly, the parties hereto agree as follows:
ARTICLE II
Obligations
Schedule 1.2 is hereby amended to include immediately after
clause (f) thereof new clauses (g) through (i) as follows:
(g) interests in Leisure Centers, LLC-II, a Texas limited
liability Company;
(h) interests in Leisure Centers, LLC-III, a Texas limited
liability Company; and
(i) interests in Leisure Centers, LLC-IV, a Texas limited
liability Company.
ARTICLE III
Miscellaneous
Except as herein specifically amended, all of the terms,
provisions and conditions of the Consolidation Agreement shall
continue to remain in full force and effect.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Fourth Amendment to be duly executed as of the day and year first
above written.
/s/ John Luciani /s/ Bernard M. Rodin
----------------------------- ------------------------------
John Luciani Bernard M. Rodin
J & B MANAGEMENT COMPANY
/s/ John Luciani /s/ Bernard M. Rodin
----------------------------- ------------------------------
By: John Luciani, Partner By: Bernard M. Rodin, Partner
GRAND COURT LIFESTYLES, INC.
/s/ John Luciani /s/ Bernard M. Rodin
----------------------------- ------------------------------
By: John Luciani, President By: Bernard M. Rodin, Vice-
President
Exhibit 10.1
GRAND COURT LIFESTYLES, INC.
1996 STOCK OPTION AND PERFORMANCE AWARD PLAN
_______________
EFFECTIVE AS OF JUNE 12, 1996
<PAGE>
GRAND COURT LIFESTYLES, INC.
1996 STOCK OPTION AND PERFORMANCE AWARD PLAN
INTRODUCTION
Grand Court Lifestyles, Inc., a Delaware corporation
(hereinafter referred to as the "Corporation"), hereby
establishes an incentive compensation plan to be known as the
"Grand Court Lifestyles, Inc. 1996 Stock Option and Performance
Award Plan" (hereinafter referred to as the "Plan"), as set forth
in this document. The Plan permits the grant of Non-Qualified
Stock Options, Incentive Stock Options, Stock Appreciation
Rights, Restricted Stock, Performance Units and Performance
Shares.
The Plan shall become effective as of June 12, 1996.
However, it shall be rendered null and void and have no effect,
and all Plan Awards granted hereunder shall be canceled, if the
Plan is not approved by a majority vote of the Corporation's
stockholders within twelve (12) months of such date.
The purpose of the Plan is to promote the success and
enhance the value of the Corporation by linking the personal
interests of Participants to those of the Corporation's
stockholders by providing Participants with an incentive for
outstanding performance. The Plan is further intended to provide
flexibility to the Corporation in its ability to motivate, and
retain the services of, Participants upon whose judgment,
interest and special effort the successful conduct of its
operations is largely dependent.
The Plan also provides pay systems that support the
Corporation's business strategy and emphasizes pay-for-
performance by tying reward opportunities to carefully determined
and articulated performance goals at corporate, operating unit,
business unit and/or individual levels.
<PAGE>
DEFINITIONS
For purposes of this Plan, the following terms shall be
defined as follows unless the context clearly indicates
otherwise:
(a) "Code" shall mean the Internal Revenue Code of 1986,
----
as amended, and the rules and regulations thereunder.
(b) "Committee" shall mean the Board of Directors of the
---------
Corporation or any committee of two or more persons designated by
the Board of Directors of the Corporation to serve as the
Committee. If the Committee is not composed of the entire Board
of Directors of the Corporation, it shall be composed solely of
at least two Non-Employee Directors (as defined in Rule 16b-3
promulgated under the Exchange Act).
(c) "Common Stock" shall mean the common stock, par
------------
value $0.01 per share, of the Corporation.
(d) "Corporation" shall mean Grand Court Lifestyles,
-----------
Inc., a Delaware corporation.
(e) "Disability" shall have the same meaning as the term
----------
"permanent and total disability" under Section 22(e)(3) of the
Code.
(f) "Exchange Act" shall mean the Securities Exchange
------------
Act of 1934, as amended, and the rules and regulations
thereunder.
(g) "Fair Market Value" of the Corporation's Common
-----------------
Stock on a Trading Day shall mean the last reported sale price
for Common Stock or, in case no such reported sale takes place on
such Trading Day, the average of the closing bid and asked prices
for the Common Stock for such Trading Day, in either case on the
principal national securities exchange on which the Common Stock
is listed or admitted to trading, or if the Common Stock is not
listed or admitted to trading on any national securities
exchange, but is traded in the over-the-counter market, the
closing sale price of the Common Stock or, if no sale is publicly
reported, the average of the closing bid and asked quotations for
the Common Stock, as reported by the National Association of
Securities Dealers Automated Quotation System ("NASDAQ") or any
comparable system or, if the Common Stock is not listed on NASDAQ
or a comparable system, the closing sale price of the Common
Stock or, if no sale is publicly reported, the average of the
closing bid and asked prices, as furnished by two members of the
National Association of Securities Dealers, Inc. who make a
market in the Common Stock selected from time to time by the
Corporation for that purpose. In addition, for purposes of this
definition, a "Trading Day" shall mean, if the Common Stock is
listed on any national securities exchange, a business day during
which such exchange was open for trading and at least one trade
of Common Stock was effected on such exchange on such business
day, or, if the Common Stock is not
-2-
<PAGE>
listed on any national securities exchange but is traded in the
over-the-counter market, a business day during which the
over-the-counter market was open for trading and at least one
"eligible dealer" quoted both a bid and asked price for the
Common Stock. An "eligible dealer" for any day shall include
any broker-dealer who quoted both a bid and asked price for such
day, but shall not include any broker-dealer who quoted only a
bid or only an asked price for such day. In the event the
Corporation's Common Stock is not publicly traded, the Fair
Market Value of such Common Stock shall be determined by the
Committee in good faith.
(h) "Freestanding SAR" shall mean an SAR that is granted
----------------
independently of any Option.
(i) "Good Cause" shall mean (i) a Participant's willful
----------
or gross misconduct or willful or gross negligence in the
performance of his duties for the Corporation or for any Parent
or Subsidiary after prior written notice of such misconduct or
negligence and the continuance thereof for a period of 30 days
after receipt by such Participant of such notice, (ii) a
Participant's intentional or habitual neglect of his duties for
the Corporation or for any Parent or Subsidiary after prior
written notice of such neglect, or (iii) a Participant's theft or
misappropriation of funds of the Corporation or of any Parent or
Subsidiary or commission of a felony.
(j) "Incentive Stock Option" shall mean a stock option
----------------------
satisfying the requirements for tax-favored treatment under
Section 422 of the Code.
(k) "Non-Qualified Option" shall mean a stock option
--------------------
which does not satisfy the requirements for, or which is not
intended to be eligible for, tax-favored treatment under Section
422 of the Code.
(l) "Option" shall mean an Incentive Stock Option or a
------
Non-Qualified Stock Option granted pursuant to the provisions of
Section V hereof.
(m) "Optionee" shall mean a Participant who is granted
--------
an Option under the terms of this Plan.
(n) "Parent" shall mean a parent corporation of the
------
Corporation within the meaning of Section 424(e) of the Code.
(o) "Participant" shall mean any employee participating
-----------
under the Plan.
(p) "Performance Share" shall mean a Plan Award granted
-----------------
pursuant to the provisions of Section VII hereof, with each such
Award being denominated in terms of one share of Common Stock and
nominally being based upon the performance of the Corporation's
Common Stock, or any other factor as determined by the Committee.
-3-
<PAGE>
(q) "Performance Unit" shall mean a Plan Award granted
----------------
pursuant to the provisions of Section VII hereof, which Award may
be based upon any performance factor established by the
Committee, as set forth under such Section.
(r) "Plan Award" shall mean an Option, Performance
----------
Share, Performance Unit Stock Appreciation Right or share of
Restricted Stock granted pursuant to the terms of this Plan.
(s) "Restricted Stock" shall mean a grant of one or more
----------------
shares of Common Stock subject to certain restrictions as
provided under Section VII hereof.
(t) "Securities Act" shall mean the Securities Act of
--------------
1933, as amended, and the rules and regulations thereunder.
(u) "Stock Appreciation Right" or "SAR" shall mean a
------------------------ ---
right, granted alone or in connection with a related Option,
designated as a SAR, to receive a payment on the day the right is
exercised, pursuant to the terms of Section VI hereof. Each SAR
shall be denominated in terms of one share of Common Stock.
(v) "Subsidiary" shall mean a subsidiary corporation of
----------
the Corporation within the meaning of Section 424(f) of the Code.
(w) "Tandem SAR" shall mean an SAR that is granted in
----------
connection with a related Option, the exercise of which shall
require forfeiture of the right to purchase a share of Common
Stock under the related Option (and when a share of Common Stock
is purchased under such Option, the Tandem SAR being similarly
canceled).
SECTION I
ADMINISTRATION
The Plan shall be administered by the Committee.
Subject to the provisions of the Plan, the Committee may
establish from time to time such regulations, provisions,
proceedings and conditions of awards which, in its opinion, may
be advisable in the administration of the Plan. A majority of
the Committee shall constitute a quorum, and, subject to the
provisions of Section IV of the Plan, the acts of a majority of
the members present at any meeting at which a quorum is present,
or acts approved in writing by a majority of the Committee, shall
be the acts of the Committee as a whole.
-4-
<PAGE>
SECTION II
SHARES AVAILABLE
Subject to the adjustments provided in Section IX of
the Plan, the aggregate number of shares of the Common Stock
which may be granted for all purposes under the Plan shall be one
million two hundred fifty thousand (1,250,000) shares. Shares of
Common Stock underlying awards of securities (derivative or not)
and shares of Common Stock awarded hereunder (whether or not on a
restricted basis) shall be counted against the limitation set
forth in the immediately preceding sentence and may be reused to
the extent the related Award to any individual is settled in cash
or expires, is terminated unexercised, or is forfeited. Stock
granted to satisfy Awards under the Plan may be authorized and
unissued shares of the Common Stock, issued shares of such Common
Stock held in the Corporation's treasury or shares of Common
Stock acquired on the open market.
SECTION III
ELIGIBILITY
Officers and key employees of the Corporation, or of
any Parent or Subsidiary, who are regularly employed on a
salaried basis as common law employees shall be eligible to
participate in the Plan. Directors of the Corporation or of any
Parent or Subsidiary who are not employees shall also be eligible
to participate under the Plan and where appropriate hereunder,
shall be referred to as "employees" and their service as
directors as "employment".
SECTION IV
AUTHORITY OF COMMITTEE
The Plan shall be administered by, or under the
direction of, the Committee, which shall administer the Plan so
as to comply at all times with Section 16 of the Exchange Act, to
the extent such compliance is required, and, subject to the Code,
shall otherwise have plenary authority to interpret the Plan and
to make all determinations specified in or permitted by the Plan
or deemed necessary or desirable for its administration or for
the conduct of the Committee's business. Subject to the
provisions of Section XIII hereof, all interpretations and
determinations of the Committee may be made on an individual or
group basis and shall be final, conclusive, and binding on all
interested parties. Subject to the express provisions of the
Plan, the Committee shall have authority, in its discretion, to
determine the persons to whom Plan Awards shall be granted, the
times when such Plan Awards shall be granted, the number of Plan
Awards, the purchase price or exercise price of each Plan Award,
the period(s) during which such Plan Award shall be exercisable
(whether in whole or in part), the restrictions to be applicable
to Plan Awards and the other terms and provisions thereof (which
need not be identical). In addition, the authority of the
Committee shall include, without limitation, the following:
-5-
<PAGE>
(a) Financing. The arrangement of temporary financing
---------
for an Optionee by registered broker-dealers, under the rules and
regulations of the Federal Reserve Board, for the purpose of
assisting the Optionee in the exercise of an Option, such
authority to include the payment by the Corporation of the
commissions of the broker-dealer;
(b) Procedures for Exercise of Option. The
---------------------------------
establishment of procedures for an Optionee (i) to exercise an
Option by payment of cash (ii) to have withheld from the total
number of shares of Common Stock to be acquired upon the exercise
of an Option that number of shares having a Fair Market Value,
which, together with such cash as shall be paid in respect of
fractional shares, shall equal the Option exercise price of the
total number of shares of Common Stock to be acquired, (iii) to
exercise all or a portion of an Option by delivering that number
of shares of Common Stock already owned by him having a Fair
Market Value which shall equal the Option exercise price for the
portion exercised and, in cases where an Option is not exercised
in its entirety, and subject to the requirements of the Code, to
permit the Optionee to deliver the shares of Common Stock thus
acquired by him in payment of shares of Common Stock to be
received pursuant to the exercise of additional portions of such
Option, the effect of which shall be that an Optionee can in
sequence utilize such newly acquired shares of Common Stock in
payment of the exercise price of the entire Option, together with
such cash as shall be paid in respect of fractional shares and (iv)
to engage in any form of "cashless" exercise.
(c) Withholding. The establishment of a procedure
-----------
whereby a number of shares of Common Stock or other securities
may be withheld from the total number of shares of Common Stock
or other securities to be issued upon exercise of an Option,
Stock Appreciation Right or other grant or award, as applicable,
or for the tender of shares of Common Stock owned by the
Participant to meet the obligation of withholding for taxes
incurred by the Optionee upon such exercise.
SECTION V
STOCK OPTIONS
The Committee shall have the authority, in its
discretion, to grant Incentive Stock Options or to grant
Non-Qualified Stock Options or to grant both types of Options.
Notwithstanding anything contained herein to the contrary, an
Incentive Stock Option may be granted only to common law
employees of the Corporation or of any Parent or Subsidiary now
existing or hereafter formed or acquired, and not to any director
or officer who is not also such a common law employee. The terms
and conditions of the Options shall be determined from time to
time by the Committee; provided, however, that the Options
-------- -------
granted under the Plan shall be subject to the following:
(a) Exercise Price. The Committee shall establish the
--------------
exercise price at the time any Option is granted at such amount
as the Committee shall determine; provided, however, that the
-------- -------
exercise price for each share of Common Stock purchasable under
any
-6-
<PAGE>
Incentive Stock Option granted hereunder shall be such amount as
the Committee shall, in its best judgment, determine to be not
less than one hundred percent (100%) of the Fair Market Value per
share of Common Stock at the date the Option is granted; and
provided, further, that in the case of an Incentive Stock Option
granted to a person who, at the time such Incentive Stock Option
is granted, owns shares of stock of the Corporation or of any
Parent or Subsidiary which possess more than ten percent (10%) of
the total combined voting power of all classes of shares of stock
of the Corporation or of any Parent or Subsidiary, the exercise
price for each share of Common Stock shall be such amount as the
Committee, in its best judgment, shall determine to be not less
than one hundred ten percent (110%) of the Fair Market Value per
share of Common Stock at the date the Option is granted. The
exercise price will be subject to adjustment in accordance with
the provisions of Section IX of the Plan.
(b) Payment of Exercise Price. The price per share of
-------------------------
Common Stock with respect to each Option shall be payable at the
time the Option is exercised. Such price shall be payable in
cash or pursuant to any of the methods set forth in Sections
IV(a) or (b) hereof, as determined by the Participant. Shares of
Common Stock delivered to the Corporation in payment of the
exercise price shall be valued at the Fair Market Value of the
Common Stock on the date preceding the date of the exercise of
the Option.
(c) Exercisability of Options. Each Option shall be
-------------------------
exercisable in whole or in installments, and at such time(s), and
subject to the fulfillment of any conditions on exercisability as
may be determined by the Committee at the time of the grant of
such Options. The right to purchase shares of Common Stock shall
be cumulative so that when the right to purchase any shares of
Common Stock has accrued such shares of Common Stock or any part
thereof may be purchased at any time thereafter until the
expiration or termination of the Option.
(d) Expiration of Options. No Option by its terms shall
---------------------
be exercisable after the expiration of ten (10) years from the
date of grant of the Option; provided, however, in the case of an
-------- -------
Incentive Stock Option granted to a person who, at the time such
Option is granted, owns shares of stock of the Corporation or of
any Parent or Subsidiary possessing more than ten percent (10%)
of the total combined voting power of all classes of shares of
stock of the Corporation or of any Parent or Subsidiary, such
Option shall not be exercisable after the expiration of five (5)
years from the date such Option is granted.
(e) Exercise Upon Death of Optionee. In the event of
-------------------------------
the death of the Optionee prior to his termination of employment
with the Corporation or with any Parent or Subsidiary, any
nonvested Options granted to such Optionee shall vest immediately
and his estate (or other beneficiary, if so designated in writing
by the Participant) shall have the right, until the expiration
date of the Option(s), to exercise his Option(s) with respect to
all or any part of the shares of Common Stock as to which the
deceased Optionee had not exercised his Option(s) at the time of
his death, regardless of whether such Option or Options were
fully exercisable at such time.
-7-
<PAGE>
(f) Exercise Upon Disability of Optionee. If the
------------------------------------
employment by the Corporation or by any Parent or Subsidiary of
an Optionee is terminated because of such Optionee's Disability,
any nonvested Options granted to such Optionee shall vest
immediately and he shall have the right, within one (1) year
after the date of such termination in the case of an Incentive
Stock Option (but in no case after the expiration of the
Option(s)), and until the expiration date of the Option(s) in the
case of a Non-Qualified Stock Option, to exercise his Option(s)
with respect to all or any part of the shares of Common Stock as
to which he had not exercised his Option(s) at the time of such
termination, regardless of whether such Option or Options were
fully exercisable at such time.
(g) Exercise Upon Optionee's Other Termination of
---------------------------------------------
Employment. Except as provided in the following sentence, if the
----------
employment of an Optionee by the Corporation or by any Parent or
Subsidiary is terminated (in the case of an Optionee (with
respect to any Non-Qualified Options granted to such Optionee)
who is an employee and a director of the Corporation and/or any
Parent or Subsidiary, termination of service both as an employee
and as such a director) for any reason other than those specified
in Sections V(e) or (f), above, he shall have the right, within
three (3) months after the date of such termination in the case
of an Incentive Stock Option (but in no case after the expiration
date of the Option(s)), and until the expiration date of the
Option in the case of a Non-Qualified Stock Option, to exercise
his Option(s) only with respect to that number of shares of
Common Stock that he was entitled to purchase pursuant to
Option(s) that were exercisable immediately prior to such
termination. Notwithstanding the provisions of the immediately
preceding sentence, (i) if an Optionee's employment is terminated
by the Corporation or by any Parent or Subsidiary for Good Cause
or (ii) if an Optionee voluntarily terminates his employment with
the Corporation or with any Parent or Subsidiary without the
written consent of the Committee (in both cases, regardless of
whether such Optionee continues to serve as a director of the
Corporation or any Parent or Subsidiary), then the Optionee
shall, at the time of such termination of employment, forfeit his
rights to exercise any and all of such Option(s).
(h) Maximum Amount of Incentive Stock Options. Each
-----------------------------------------
Plan Award under which Incentive Stock Options are granted shall
provide that to the extent the aggregate of the (i) Fair Market
Value of the shares of Common Stock (determined as of the time of
the grant of the Option) subject to such Incentive Stock Option
and (ii) the fair market values (determined as of the date(s) of
grant of the option(s)) of all other shares of Common Stock
subject to incentive stock options granted to an Optionee by the
Corporation or any Parent or Subsidiary, which are exercisable
for the first time by any person during any calendar year,
exceed(s) one hundred thousand dollars ($100,000), such excess
shares of Common Stock shall not be deemed to be purchased
pursuant to Incentive Stock Options. The terms of the
immediately preceding sentence shall be applied by taking all
options, whether or not granted under this Plan, into account in
the order in which they are granted.
SECTION VI
STOCK APPRECIATION RIGHTS
-8-
<PAGE>
(a) Tandem Stock Appreciation Rights. The Committee
--------------------------------
shall have the authority to grant Stock Appreciation Rights in
tandem with an Option, either at the time of grant of the Option
or by amendment. Each such Stock Appreciation Right shall be
subject to the same terms and conditions as the related Option,
if any, and shall be exercisable only at such times and to such
extent as the related Option is exercisable; provided, however,
-------- -------
that a Stock Appreciation Right may be exercised only when the
Fair Market Value of the Common Stock exceeds the exercise
price of the related Option. A Stock Appreciation Right shall
entitle the Optionee to surrender to the Corporation unexercised
the related Option, or any portion thereof, and to receive
from the Corporation in exchange therefor cash (as provided below)
or that number of shares of Common Stock having an aggregate value
equal to the excess of the Fair Market Value of one share of the
Common Stock of the Corporation on the day preceding the
surrender of such Option over the exercise price per share of
Common Stock multiplied by the number of shares of Common Stock
provided for under the Option, or portion thereof, which is
surrendered; provided, however, that no fractional shares shall
-------- -------
be issued of Common Stock (cash being delivered to the
Participant in lieu of such fractional shares). The number of
shares of Common Stock which may be received pursuant to the
exercise of a Stock Appreciation Right may not exceed the number
of shares of Common Stock provided for under the Option, or
portion thereof, which is surrendered. The Committee shall
have the right, in its sole discretion, to approve an election
by a Participant to receive cash in whole or in part in settlement
of the Stock Appreciation Right. Within thirty (30) days
following the receipt by the Committee of a request to receive
cash in whole or in part in settlement of a Stock Appreciation
Right, the Committee shall, in its sole discretion, either
consent to or disapprove, in whole or in part, such a request. A
request to receive cash in whole or in part in settlement of a
Stock Appreciation Right may provide that, in the event the
Committee shall disapprove such request, such request shall be
deemed to be an exercise of such Stock Appreciation Right for
shares of Common Stock.
(b) Freestanding Stock Appreciation Rights. The
--------------------------------------
Committee also shall have the authority to grant Stock
Appreciation Rights unrelated to any Option that may be granted
hereunder. Each such Stock Appreciation Right shall be subject
to the terms and conditions as determined by the Committee.
Freestanding Stock Appreciation Rights shall entitle the Optionee
to surrender to the Corporation a portion or all of such rights
and to receive from the Corporation in exchange therefor cash (as
provided below) or that number of shares of Common Stock having
an aggregate value equal to the excess of the Fair Market Value
of one share of the Common Stock of the Corporation on the day
preceding the surrender of such Rights over the Fair Market Value
per share of Common Stock (determined as of the date the Stock
Appreciation Right was granted) multiplied by the number of Stock
Appreciation Rights which are surrendered; provided, however,
-------- -------
that no fractional shares of Common Stock shall be issued (cash
being delivered to the Participant in lieu of such fractional
shares). The Committee shall have the right, in its sole
discretion, to approve an election by a Participant to receive
cash in whole or in part in settlement of a Stock Appreciation
Right. Within thirty (30) days following the receipt by the
Committee of a request to receive cash in whole or in part
in settlement of a Stock Appreciation Right, the Committee shall,
in its sole discretion, either consent to or
-9-
<PAGE>
disapprove, in whole or in part, such a request. A request to
receive cash in whole or in part in settlement of a Stock
Appreciation Right may provide that, in the event the Committee
shall disapprove such request, such request shall be deemed to be
an exercise of such Stock Appreciation Right for shares of Common
Stock.
(c) Exercise of Stock Appreciation Rights. If the
-------------------------------------
Participant (i) voluntarily ceases to be an employee of the
Corporation, or of any Parent or Subsidiary, with the written
consent of the Committee, (ii) dies or becomes Disabled or (iii)
suffers an involuntary termination of his employment with the
Corporation or with any Parent or Subsidiary for reasons other
than Good Cause, the Plan Award earned under Section VI(b) with
respect to any outstanding Freestanding Stock Appreciation Rights
shall be determined as otherwise provided herein or in any
agreement executed by the Corporation and such Participant
hereunder. If the Participant ceases to be an employee of the
Corporation or of any Parent or Subsidiary for any other reason
(regardless of whether such Participant continues to serve as a
director/employee of the Corporation or any Parent or
Subsidiary), all Plan Awards granted under Section VI(b) shall be
forfeited.
SECTION VII
PERFORMANCE SHARES, RESTRICTED STOCK AND PERFORMANCE UNITS
The Committee shall have the authority to grant
Performance Shares, Restricted Stock or Performance Units either
separately or in combination with other Plan Awards. The terms
and conditions of Performance Shares, Restricted Stock or
Performance Units shall be determined from time to time by the
Committee, without limitation, except as otherwise provided in
the Plan. Furthermore:
(a) Performance Account. The Corporation shall
-------------------
establish a performance account for each Participant to whom
Performance Shares or Performance Units are granted, and the Per-
formance Shares or Performance Units granted shall be credited to
such account.
(b) Duration of Performance or Restriction Period. The
---------------------------------------------
duration of the performance or restriction period shall be
determined by the Committee at the time each such grant is made
and will be set forth under the Award Agreement. More than one
grant may be outstanding at any one time, and performance or
restriction periods may be of different lengths.
(c) Restricted Stock. Shares of Common Stock granted in
----------------
the form of Restricted Stock shall be registered in the name of
the Participant and, together with a stock power endorsed in
blank, deposited with the Corporation. With respect to such
Restricted Stock, the Participant shall generally have the rights
and privileges of a stockholder of the Corporation as to such
shares, including the right to vote such Restricted Stock, except
that the following restrictions shall apply: (i) the Participant
shall not be entitled to delivery of a certificate until the
expiration or termination of the restriction period, (ii) none of
the shares of Restricted Stock may be sold, transferred,
assigned, pledged, or otherwise encumbered or disposed of during
the restriction period
-10-
<PAGE>
and (iii) all of the shares of Restricted Stock shall be
forfeited by the Participant without further obligation on the
part of the Corporation as set forth in Section VII(h) hereof.
Cash and stock dividends with respect to the Restricted Stock
will be distributed as declared. Upon the forfeiture of any
Restricted Stock, such forfeited shares of Common Stock shall be
transferred to the Corporation without further action by the
Participant. Upon the expiration or termination of the
restriction period, the restrictions imposed on the appropriate
Restricted Stock shall lapse and a stock certificate for the
number of shares of Restricted Stock with respect to which the
restrictions have lapsed shall be delivered, free of all such
restrictions, except any that may be imposed by law or by any
applicable stockholders' agreement, to the Participant. A
Participant who files an election with the Internal Revenue
Service to include the fair market value of any Restricted Stock
in gross income while they are still subject to restrictions
shall promptly furnish the Corporation with a copy of such
election together with the amount of any federal, state, local or
other taxes that may be required to be withheld to enable the
Corporation to claim an income tax deduction with respect to such
election.
(d) Payments of Performance Shares/Performance Units.
------------------------------------------------
Any Performance Shares or Performance Units earned during a
performance period shall be paid in cash or in shares of Common
Stock (as set forth under the Award Agreement, or as otherwise
determined by the Committee) as soon as is practicable after the
end of the performance period to which such Plan Award relates.
(e) Performance Targets. At the time of each grant, the
-------------------
Committee shall establish performance targets (to be satisfied
during the performance period) and/or periods of service to which
the vesting of Performance Shares, Performance Units and/or
Restricted Stock shall be conditioned. The Committee may also
establish a relationship between performance targets and the
number of Performance Shares or the number or value of
Performance Units which shall be earned. The Committee also may
establish a relationship between performance results other than
the targets and the number of Performance Shares or Restricted
Stock and the number or value of Performance Units, if any, which
shall be earned. The Committee shall determine the measures of
performance to be used in determining the extent to which
Performance Shares or Performance Units are earned or to which
restrictions on Restricted Stock or units shall lapse.
Performance measures and targets may vary among grants. The
Committee may, in its sole discretion, make such adjustments to
performance targets, the number of Performance Shares or the
number or value of Performance Units which shall be earned, or
such other changes as it may deem necessary or advisable in the
event of material changes in the criteria used for establishing
performance targets which would result in the dilution or
enlargement of a Participant's award outside the goals intended
by the Committee at the time of the grant of the Plan Award.
(f) Dividend or Interest Equivalents for Performance
------------------------------------------------
Shares and Performance Units. The Committee may provide that
----------------------------
amounts equivalent to dividends or interest shall be payable with
respect to Performance Shares or Performance Units held in the
Participant's performance account. Such amounts shall be
credited to the performance account, and shall be payable to the
Participant
-11-
<PAGE>
in cash or in Common Stock, as set forth under the terms of the
Plan Award, at such time as the Performance Shares or Performance
Units are earned. The Committee further may provide that amounts
equivalent to interest or dividends held in the performance
accounts shall be credited to such accounts on a periodic or
other basis.
(g) Termination of Employment. If the Participant (i)
-------------------------
voluntarily ceases to be an employee of the Corporation, or of
any Parent or Subsidiary, with the written consent of the
Committee, (ii) dies or becomes Disabled, (iii) terminates his
employment with the Corporation or with any Parent or Subsidiary
due to retirement or (iv) suffers an involuntary termination of his
employment with the Corporation or with any Parent or Subsidiary
for reasons other than Good Cause, the Plan Award earned under
this Section with respect to any outstanding Performance Shares,
Restricted Stock, Performance Units or interest or dividend
equivalents shall be determined as otherwise provided herein or
in any agreement executed by such Participant hereunder. If the
Participant ceases to be an employee of the Corporation or of any
Parent or Subsidiary for any other reason (regardless of whether
such Participant continues to serve as a director/employee of the
Corporation or any Parent or Subsidiary), all Plan Awards granted
under this Section VII and subject to restrictions shall be
forfeited. In such case, the Corporation shall have the right to
complete the blank stock power with respect to Restricted Stock
and transfer the same to its treasury.
-12-
<PAGE>
SECTION VIII
DEFERRAL OF PAYMENTS
The Committee may establish procedures by which a
Participant may elect to defer payment of a Performance Share or
a Performance Unit. The Committee shall determine the terms and
conditions of such deferral. Any such deferral shall be subject
to the following:
(a) Contingent Nature of Allocation. Every allocation
-------------------------------
under the Plan to a performance account shall be considered
"contingent" and unfunded until any forfeiture restrictions under
the terms of the Plan Award expire or lapse, until all conditions
contained in the Plan Award are satisfied, and until any elective
deferral period expires. Such contingent allocations shall be
considered bookkeeping entries only, notwithstanding the
crediting of deemed "dividends" or "interest." Nothing
contained herein shall be construed as creating a trust or
fiduciary relationship between the Participant and the
Corporation or the Committee.
(b) Participant's Rights to Awards. Until the Plan
------------------------------
Award vests, the elective deferral period expires, and any
restrictions are lifted, the related amounts held in the
Participant's performance account cannot be sold, conveyed,
transferred, pledged, hypothecated, or assigned. Until the Plan
Award vests and becomes payable, such account balances shall be
the property of the Corporation. The Participant's right to such
account balances shall be subject to the claims of the general
creditors of the Corporation. Receipt of the Plan Award is
conditioned upon satisfactory compliance with the terms and
conditions of the such Plan Award and other requirements of the
Plan.
(c) Election to Defer Payment. If a Participant
-------------------------
desires to defer the normal receipt of Common Stock or cash due
him under a Plan Award, he must make an irrevocable election in a
calendar year prior to the calendar year or years in which he is
to perform services that will entitle him to the Plan Award.
Such election shall provide a fixed date or dates for the
termination of the deferral period. The Participant shall not be
permitted to receive his Plan Award prior to the end of the
elected deferral period, except in the event of his death,
Disability or termination of employment with the Corporation or
any Parent or Subsidiary.
SECTION IX
ADJUSTMENT OF SHARES; MERGER OR
CONSOLIDATION, ETC. OF THE CORPORATION
(a) Recapitalization, Etc. In the event there is any
----------------------
change in the Common Stock of the Corporation by reason of any
reorganization, recapitalization, stock split, stock dividend or
otherwise, there shall be substituted for or added to each share
of Common Stock theretofore appropriated or thereafter subject,
or which may become subject, to any Option, Stock Appreciation
Right, grant of Restricted Stock, Performance Share or
-13-
<PAGE>
Performance Unit award, the number and kind of shares of stock or
other securities into which each outstanding share of Common
Stock shall be so changed or for which each such share shall be
exchanged, or to which each such share be entitled, as the case
may be, and the per share price thereof also shall be
appropriately adjusted. Notwithstanding the foregoing, (i) each
such adjustment with respect to an Incentive Stock Option shall
comply with the rules of Section 424(a) of the Code and (ii) in no
event shall any adjustment be made which would render any
Incentive Stock Option granted hereunder to be other than an
incentive stock option for purposes of Section 422 of the Code.
(b) Merger, Consolidation or Change in Control of
---------------------------------------------
Corporation. Upon (i) the merger or consolidation of the
-----------
Corporation with or into another corporation, (pursuant to which
the stockholders of the Corporation immediately prior to such
merger or consolidation will not, as of the date of such merger
or consolidation, own a beneficial interest in shares of voting
securities of the corporation surviving such merger or
consolidation having at least a majority of the combined voting
power of such corporation's then outstanding securities), if the
agreement of merger or consolidation does not provide for (1) the
continuance of the Options, Stock Appreciation Rights and shares
of Restricted Stock granted hereunder or (2) the substitution of
new Options, Stock Appreciation Rights or shares of Restricted
Stock for Options, Stock Appreciation Rights and shares of
Restricted Stock granted hereunder, or for the assumption of such
Options, Stock Appreciation Rights and shares of Restricted Stock
by the surviving corporation or (ii) the dissolution, liquidation,
or sale of all of, or substantially all of, the assets, of the
Corporation or (iii) the Change in Control of the Corporation, (1)
the holder of any such Option or Stock Appreciation Right
theretofore granted and still outstanding (and not otherwise
expired) shall have the right immediately prior to the effective
date of such merger, consolidation, dissolution, liquidation,
sale of assets or Change in Control of the Corporation to
exercise such Option(s) or Stock Appreciation Right(s) in whole
or in part without regard to any installment provision that may
have been made part of the terms and conditions of such Option(s)
or Stock Appreciation Right(s) and (2) all restrictions regarding
transferability and forfeiture on shares of Restricted Stock
shall be removed immediately prior to the effective date of such
merger, consolidation, dissolution, liquidation, sale of assets
or Change in Control of the Corporation; provided that any
conditions precedent to the exercise of such Options or Stock
Appreciation Rights and the transfer of such shares of Restricted
Stock, other than the passage of time, have occurred. The
Corporation, to the extent practicable, shall give advance notice
to affected Optionees and holders of Stock Appreciation Rights or
shares of Restricted Stock of such merger, consolidation, disso-
lution, liquidation, sale of assets or Change in Control of the
Corporation. All such Options and Stock Appreciation Rights
which are not so exercised shall be forfeited as of the effective
time of such merger, consolidation, dissolution, liquidation or
sale of assets (but not in the Change in Control of the
Corporation).
(c) Effect of Merger or Consolidation. As of the
---------------------------------
effective date of the merger, consolidation, dissolution,
liquidation or sale of all or substantially all of the assets of
the Corporation, no Participant shall earn any additional
Performance Share or Performance Unit or dividend or interest
equivalent under this Plan. Furthermore, if the value of any
-14-
<PAGE>
Performance Share or Performance Unit cannot be determined as of
such date because such Plan Award is conditioned upon the future
financial performance of the Corporation, such Performance Share
or Performance Unit (including any applicable dividend or
interest equivalents) shall be prorated based on the percentage
of the performance period completed prior to such date and based
upon the assumption that such financial performance criteria have
been satisfied at the maximum level. Any Performance Share or
Performance Unit payable after the date of the merger,
consolidation, dissolution, liquidation or sale of substantially
all of the assets of the Corporation shall be paid in cash, as of
the date such Performance Share or Performance Unit originally
was to have been paid, or as of such earlier date as may be
determined by the Corporation or its successor.
(d) Definition of Change in Control of the
--------------------------------------
Corporation. As used herein, a "Change in Control of the
-----------
Corporation" shall be deemed to have occurred if any person
(including any individual, firm, partnership or other entity)
together with all Affiliates and Associates (as defined under
Rule 12b-2 of the General Rules and Regulations promulgated under
the Exchange Act) of such person (but excluding (i) a trustee or
other fiduciary holding securities under an employee benefit plan
of the Corporation or any subsidiary of the Corporation, (ii) a
corporation owned, directly or indirectly, by the stockholders of
the Corporation in substantially the same proportions as their
ownership of the Corporation, (iii) the Corporation or any
subsidiary of the Corporation, (iv) John Luciani and Bernard M.
Rodin together with all Affiliates and Associates of either such
person, or (v) only as provided in the immediately following
sentence, a Participant together with all Affiliates and
Associates of the Participant) is or becomes the Beneficial Owner
(as defined in Rule 13d-3 promulgated under the Exchange Act),
directly or indirectly, of securities of the Corporation
representing 40% of more of the combined voting power of the
Corporation's then outstanding securities. The provisions of
clause(v) of the immediately preceding sentence shall apply only
with respect to the Option(s) held by the Participant who,
together with his Affiliates or Associates, if any, is or becomes
the direct or indirect Beneficial Owner of the percentage of
securities set forth in such clause.
SECTION X
MISCELLANEOUS PROVISIONS
(a) Administrative Procedures. The Committee may
-------------------------
establish any procedures determined by it to be appropriate in
discharging its responsibilities under the Plan. Subject to the
provisions of Section XIII hereof, all actions and decisions of
the Committee shall be final.
(b) Assignment or Transfer. No grant or award of any
----------------------
Plan Award (other than a Non- Qualified Option) or any rights or
interests therein shall be assignable or transferable by a
Participant except by will or the laws of descent and
distribution or pursuant to a domestic relations order. During
the lifetime of a Participant, Incentive Stock Options granted
hereunder shall be exercisable only by the Participant.
Performance Shares or Restricted Stock or Performance Units may
not be sold, assigned, transferred, redeemed, pledged or
otherwise encumbered during the restriction period, except as may
be provided in Section VIII(b) hereof.
-15-
<PAGE>
(c) Investment Representation. In the case of Plan
-------------------------
Awards paid in shares of Common Stock or other securities, the
Committee may require, as a condition of receiving such
securities, that the Participant furnish to the Corporation such
written representations and information as the Committee deems
appropriate to permit the Corporation, in light of the existence
or nonexistence of an effective registration statement under the
Securities Act to deliver such securities in compliance with the
provisions of the Securities Act.
(d) Withholding Taxes. The Corporation shall have the
-----------------
right to deduct from all cash payments hereunder any federal,
state, local or foreign taxes required by law to be withheld with
respect to such payments. In the case of the issuance or
distribution of Common Stock or other securities hereunder, the
Corporation, as a condition of such issuance or distribution, may
require the payment (through withholding from the Participant's
salary, reduction of the number of shares of Common Stock or
other securities to be issued, or otherwise) of any such taxes.
Each Participant may satisfy the withholding obligations by
paying to the Corporation a cash amount equal to the amount
required to be withheld or by tendering to the Corporation a
number of shares of Common Stock having a value equivalent to
such cash amount, or by use of any available procedure as
described under Section IV(c) hereof.
(e) Costs and Expenses. The costs and expenses of
------------------
administering the Plan shall be borne by the Corporation and
shall not be charged against any award nor to any employee
receiving a Plan Award.
(f) Funding of Plan. Except in the case of awards of
---------------
Restricted Stock, the Plan shall be unfunded. The Corporation
shall not be required to segregate any of its assets to assure
the payment of any Plan Award under the Plan. Neither the
Participants nor any other persons shall have any interest in any
fund or in any specific asset or assets of the Corporation or any
other entity by reason of any Plan Award, except to the extent
expressly provided hereunder. The interests of each Participant
and former Participant hereunder are unsecured and shall be
subject to the general creditors of the Corporation.
(g) Other Incentive Plans. The adoption of the Plan
---------------------
does not preclude the adoption by appropriate means of any other
incentive plan for employees.
(h) Plurals and Gender. Where appearing in the Plan,
------------------
masculine gender shall include the feminine and neuter genders,
and the singular shall include the plural, and vice versa, unless
the context clearly indicates a different meaning.
(i) Headings. The headings and sub-headings in this
--------
Plan are inserted for the convenience of reference only and are
to be ignored in any construction of the provisions hereof.
(j) Severability. In case any provision of this Plan
------------
shall be held illegal or void, such illegality or invalidity
shall not affect the remaining provisions of this Plan, but shall
-16-
<PAGE>
be fully severable, and the Plan shall be construed and enforced
as if said illegal or invalid provisions had never been inserted
herein.
(k) Payments Due Missing Persons. The Corporation
----------------------------
shall make a reasonable effort to locate all persons entitled to
benefits under the Plan; however, notwithstanding any provisions
of this Plan to the contrary, if, after a period of one (1) year
from the date such benefits shall be due, any such persons
entitled to benefits have not been located, their rights under
the Plan shall stand suspended. Before this provision becomes
operative, the Corporation shall send a certified letter to all
such persons at their last known addresses advising them that
their rights under the Plan shall be suspended. Subject to all
applicable state laws, any such suspended amounts shall be held
by the Corporation for a period of one (1) additional year and
thereafter such amounts shall be forfeited and thereafter remain
the property of the Corporation.
(l) Liability and Indemnification. (i) Neither the
-----------------------------
Corporation nor any Parent or Subsidiary shall be responsible in
any way for any action or omission of the Committee, or any other
fiduciaries in the performance of their duties and obligations as
set forth in this Plan. Furthermore, neither the Corporation nor
any Parent or Subsidiary shall be responsible for any act or
omission of any of their agents, or with respect to reliance upon
advice of their counsel provided that the Corporation and/or the
appropriate Parent or Subsidiary relied in good faith upon the
action of such agent or the advice of such counsel.
(ii) Except for their own gross negligence or willful
misconduct regarding the performance of the duties specifically
assigned to them under, or their willful breach of the terms of,
this Plan, the Corporation, each Parent and Subsidiary and the
Committee shall be held harmless by the Participants, former
Participants, beneficiaries and their representatives against
liability or losses occurring by reason of any act or omission.
Neither the Corporation, any Parent or Subsidiary, the Committee,
nor any agents, employees, officers, directors or shareholders of
any of them, nor any other person shall have any liability or
responsibility with respect to this Plan, except as expressly
provided herein.
(m) Incapacity. If the Committee shall receive
----------
evidence satisfactory to it that a person entitled to receive
payment of any Plan Award is, at the time when such benefit
becomes payable, a minor, or is physically or mentally
incompetent to receive such Plan Award and to give a valid
release thereof, and that another person or an institution is
then maintaining or has custody of such person and that no
guardian, committee or other representative of the estate of such
person shall have been duly appointed, the Committee may make
payment of such Plan Award otherwise payable to such person to
such other person or institution, including a custodian under a
Uniform Gifts to Minors Act, or corresponding legislation (who
shall be an adult, a guardian of the minor or a trust company),
and the release by such other person or institution shall be a
valid and complete discharge for the payment of such Plan Award.
-17-
<PAGE>
(n) Cooperation of Parties. All parties to this Plan
----------------------
and any person claiming any interest hereunder agree to perform
any and all acts and execute any and all documents and papers
which are necessary or desirable for carrying out this Plan or
any of its provisions.
(o) Governing Law. All questions pertaining to the
-------------
validity, construction and administration of the Plan shall be
determined in accordance with the laws of the State of Delaware.
(p) Nonguarantee of Employment. Nothing contained in
--------------------------
this Plan shall be construed as a contract of employment between
the Corporation (or any Parent or Subsidiary), and any employee
or Participant, as a right of any employee or Participant to be
continued in the employment of the Corporation (or any Parent or
Subsidiary), or as a limitation on the right of the Corporation
or any Parent or Subsidiary to discharge any of its employees,
with or without cause.
(q) Notices. Each notice relating to this Plan shall
-------
be in writing and delivered in person or by certified mail to the
proper address. All notices to the Corporation or the Committee
shall be addressed to it at 2650 N. Military Trail, Suite 350,
Boca Raton, Florida 33431, Attn: John W. Luciani, III. All
notices to Participants, former Participants, beneficiaries or
other persons acting for or on behalf of such persons shall be
addressed to such person at the last address for such person
maintained in the Committee's records.
(r) Written Agreements. Each Plan Award shall be
------------------
evidenced by a signed written agreement between the Corporation
and the Participant containing the terms and conditions of the
award.
SECTION XI
AMENDMENT OR TERMINATION OF PLAN
The Board of Directors of the Corporation shall have
the right to amend, suspend or terminate the Plan at any time,
provided that no amendment shall be made which shall increase
the total number of shares of the Common Stock of the Corporation
which may be issued and sold pursuant to Incentive Stock Options,
reduce the minimum exercise price in the case of an Incentive
Stock Option or modify the provisions of the Plan relating to
eligibility with respect to Incentive Stock Options unless such
amendment is made by or with the approval of the stockholders
(such approval being granted within 12 months of the effective
date of such amendment), but only if such approval is required by
any applicable provision of law. The Board of Directors of the
Corporation shall also be authorized to amend the Plan and the
Options granted thereunder to maintain qualification as
"incentive stock options" within the meaning of Section 422 of
the Code, if applicable. Except as otherwise provided herein, no
amendment, suspension or termination of the Plan shall alter or
impair any Plan Awards previously granted under the Plan without
the consent of the holder thereof.
-18-
<PAGE>
SECTION XII
TERM OF PLAN
The Plan shall terminate on the day immediately prior
to the tenth anniversary of the date the Plan was adopted by the
Board of Directors of the Corporation, unless sooner terminated
by such Board of Directors. No Plan Awards may be granted under
the Plan subsequent to the termination of the Plan.
SECTION XIII
CLAIMS PROCEDURES
(a) Denial. If any Participant, former Participant or
------
beneficiary is denied any vested benefit to which he is, or
reasonably believes he is, entitled under this Plan, either in
total or in an amount less than the full vested benefit to which
he would normally be entitled, the Committee shall advise such
person in writing the specific reasons for the denial. The
Committee shall also furnish such person at the time with a
written notice containing (i) a specific reference to pertinent
Plan provisions, (ii) a description of any additional material or
information necessary for such person to perfect his claim, if
possible, and an explanation of why such material or information
is needed and (iii) an explanation of the Plan's claim review
procedure.
(b) Written Request for Review. Within 60 days of
--------------------------
receipt of the information stated in subsection (a) above, such
person shall, if he desires further review, file a written
request for reconsideration with the Committee.
(c) Review of Document. So long as such person's
------------------
request for review is pending (including the 60 day period in
subsection (b) above), such person or his duly authorized
representative may review pertinent Plan documents and may submit
issues and comments in writing to the Committee.
(d) Committee's Final and Binding Decision. A final
--------------------------------------
and binding decision shall be made by the Committee within 60
days of the filing by such person of this request for
reconsideration; provided, however, that if the Committee, in its
-------- -------
discretion, feels that a hearing with such person or his repre-
sentative is necessary or desirable, this period shall be
extended for an additional 60 days.
(e) Transmittal of Decision. The Committee's decision
-----------------------
shall be conveyed to such person in writing and shall (i) include
specific reasons for the decision, (ii) be written in a manner
calculated to be understood by such person and (iii) set forth the
specific references to the pertinent Plan provisions on which the
decision is based.
(f) Limitation on Claims. Notwithstanding any
--------------------
provisions of this Plan to the contrary, no Participant (nor the
estate or other beneficiary of a Participant) shall be entitled
-19-
<PAGE>
to assert a claim against the Corporation (or against any Parent
or Subsidiary) more than three years after the date the
Participant (or his estate or other beneficiary) initially is
entitled to receive benefits hereunder.
-20-
Exhibit 10.2(b)
GUARANTY AGREEMENT
------------------
WHEREAS, the execution of this Guaranty Agreement is a
condition to LEISURE CENTERS LLC-1, a Texas limited liability
company ("Borrower"), borrowing money from BANK UNITED, a federal
savings bank ("Lender"), in the aggregate principal amount of
SEVEN MILLION AND NO/100 DOLLARS ($7,000,000.00), evidenced by
that certain Promissory Note described below.
NOW, THEREFORE, for valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the undersigned, GRAND
COURT LIFESTYLES, INC., a Delaware corporation(the "Guarantor"),
hereby irrevocably and unconditionally guarantees to Lender the
prompt payment and performance of the Guaranteed Obligations
(hereinafter defined), this Guaranty Agreement being upon the
following terms:
1. The term "Guaranteed Obligations," as used herein,
consists of: (a) that certain Promissory Note ("Note") of even
date herewith, in the original principal amount of $7,000,000.00,
executed by Borrower and payable to the order of Lender; (b)
interest on any of the indebtedness described in (a) preceding;
(c) any renewal or extension of the indebtedness described in (a)
through (b) preceding, or any part thereof; (d) all other
Obligations of Borrower to Lender under that certain Loan
Agreement ("Loan Agreement") of even date herewith; (e) all other
Obligations of Borrower to Lender under the Loan Documents as
that term is defined in the Loan Agreement; and (f) completion of
construction of the improvements to the Property, as hereinafter
defined, in compliance with the plans and specifications approved
by Lender and all applicable zoning and building codes.
2. This instrument shall be an absolute, continuing,
irrevocable, and unconditional guaranty, of payment and
performance and not a guaranty of collection, and Guarantor shall
remain liable on its obligations hereunder until the payment and
performance in full of the Guaranteed Obligations.
3. If Guarantor becomes liable for any indebtedness owing
by Borrower to Lender by endorsement or otherwise, other than
under this Guaranty Agreement, such liability shall not be in
any manner impaired or affected hereby, and the rights of Lender
hereunder shall be cumulative of any and all other rights that
Lender may ever have against Guarantor. The exercise by Lender
of any right or remedy hereunder or under any other instrument,
or at law or in equity, shall not preclude the concurrent
or subsequent exercise of any other right or remedy.
4. In the event of default (and the expiration of any
applicable notice and grace periods and written notice of same
from Lender to Guarantor) by Borrower in payment or performance
of the Guaranteed Obligations, or any part thereof, when such
Guaranteed Obligations becomes due, whether by its terms, by
acceleration, or otherwise, Guarantor shall promptly pay the
amount due thereon to Lender upon written demand in lawful money
of the United States and it shall not be necessary for Lender, in
order to enforce such payment by Guarantor, first to institute
suit or exhaust its remedies against Borrower or others liable on
such Guaranteed Obligations, or to enforce any rights against any
collateral which shall ever have been given to secure such
Guaranteed Obligations.
5. Guarantor hereby agrees that its obligations under this
Guaranty Agreement shall not be released, diminished, impaired,
reduced, or affected by the occurrence of any reason or event,
including, without limitation, one or more of the following
events, whether or not with notice to or the consent of
Guarantor: (a) the taking or accepting of collateral as security
for any or all of the Guaranteed Obligations or the release,
surrender, exchange, or subordination of any collateral now or
hereafter securing any or all of the Guaranteed Obligations; (b)
any partial release of the liability of Guarantor hereunder, or
the release of any other guarantor from liability for any or all
of the Guaranteed Obligations; (c) any disability of Borrower, or
the dissolution, insolvency, or bankruptcy of Borrower,
Guarantor, or any party at any time liable for the payment of any
or all of the Guaranteed Obligations; (d) any renewal, extension,
modification, waiver, amendment, or rearrangement of any or all
of the Guaranteed Obligations or any instrument, document, or
agreement evidencing, securing, or otherwise relating to any or
all of the Guaranteed Obligations; (e) any adjustment,
indulgence, forbearance, waiver, or compromise that may be
granted or given by Lender to Borrower, Guarantor, or any other
party ever liable for any or all of the Guaranteed Obligations;
(f) any neglect, delay, omission, failure, or refusal of Lender
to take or prosecute any action for the collection of any of the
Guaranteed Obligations or to foreclose or take or prosecute any
action in connection with any instrument, document, or agreement
evidencing, securing, or otherwise relating to any or all of the
Guaranteed Obligations; (g) the unenforceability or invalidity of
any or all of the Guaranteed Obligations or any instrument,
document, or agreement evidencing, securing, or otherwise
relating to any or all of the Guaranteed Obligations; (h) any
payment by Borrower to Lender is determined by a court to
constitute a paws or if for any other reason Lender is required
to refund such payment or pay the amount thereof to someone else;
(i) the settlement or compromise of any of the Guaranteed
Obligations; (j) the failure of Lender to perfect or continue any
security interest or lien securing any or all of the Guaranteed
Obligations; or (k) the failure of Lender to preserve, protect,
maintain, or insure any collateral securing any or all of the
Guaranteed Obligations.
6. Guarantor represents and warrants to Lender as follows:
(a) Guarantor has the power and authority to execute,
deliver and perform its obligations under this Guaranty
Agreement and this Guaranty Agreement constitutes the legal,
valid and binding obligation of Guarantor, enforceable
against Guarantor in accordance with its terms, except as
limited by bankruptcy, insolvency, or other laws of general
application relating to the enforcement of creditor's
rights.
(b) The execution, delivery, and performance by
Guarantor of this Guaranty Agreement do not and will not
violate any law or any order of any court, governmental
authority or arbitrator and do not and will not conflict
with, result in a breach of, or constitute a default under,
or result in the imposition of any lien upon any assets of
Guarantor pursuant to the provisions of any indenture,
mortgage, deed of trust, security agreement, franchise,
permit, license, or other instrument or agreement to which
Guarantor or its properties is bound.
(c) No authorization, approval, or consent of, and no
filing or registration with, any court, governmental
authority, or third party is necessary for the execution,
delivery, or performance by Guarantor of this Guaranty
Agreement or the validity or enforceability thereof.
7. Guarantor covenants and agrees that, as long as the
Guaranteed Obligations or any part thereof is outstanding:
(a) Guarantor shall furnish management prepared
financial statements to Lender for each fiscal quarter which
statements shall be due thirty (30) days after the end of
each fiscal quarter. Guarantor shall also furnish to Lender
audited annual financial statements beginning with the
fiscal year ending January 31, 1997 containing balance
sheets (reflecting, without limitation, all contingent
liabilities), income statements and statements of changes in
financial position (reflecting, without limitation, cash
flow changes) as at the end of such fiscal year and for the
12-month period then ended, in each case setting forth in
comparative form the figures for the preceding fiscal year.
All financial statements will be prepared in reasonable
detail, and all of the above prepared in accordance with
GAAP, consistently followed and applied and containing only
qualifications acceptable to Lender, in Lender's sole
discretion. Guarantor s financial statements shall be
prepared by the authorized officers of each familiar with
and knowledgeable of the information therein presented and
responsible for the supervision of the preparation of said
financial statements for Guarantor.
(b) Within sixty days after the filing of Guarantor's
tax return, Guarantor shall furnish Lender with a copy of
Guarantor's United States income tax return, as filed with
the Internal Revenue Service, together with any and all
exhibits and schedules filed in connection therewith,
beginning with the tax year ending January 31, 1997, and
continuing annually thereafter.
(c) Guarantor will furnish promptly to Lender written
notice of the occurrence of any default under this Guaranty
Agreement or an Event of Default under the Loan Documents of
which Guarantor has knowledge.
(d) Guarantor will furnish promptly to Lender such
additional information concerning Guarantor as Lender may
reasonably request.
(e) Guarantor will obtain at any time and from time to
time all authorizations, consents or approvals as shall now
or hereafter be necessary or desirable under all applicable
laws or regulations or otherwise in connection with the
execution, delivery and performance of this Guaranty
Agreement and will promptly furnish copies thereof to
Lender.
8. Upon the occurrence of an Event of Default (as defined
in the Loan Agreement), Lender shall have the right to set off
and apply against this Guaranty Agreement or the Guaranteed
Obligations or both, without notice to Guarantor, any and all
deposits (general or special, time or demand, provisional or
final) or other sums at any time credited by or owing from Lender
to Guarantor whether or not the Guaranteed Obligations is then
due and irrespective of whether or not Lender shall have made any
demand under this Guaranty Agreement. As security for this
Guaranty Agreement and the Guaranteed Obligations, Guarantor
hereby grants Lender a security interest in all money,
instruments, and other property of Guarantor now or hereafter
held by Lender, including, without limitation, property held in
safekeeping. In addition to Lender's right of setoff and as
further security for this Guaranty Agreement and the Guaranteed
Obligations, Guarantor hereby grants Lender a security interest
in all deposits (general or special, time or demand, provisional
or final) and all other accounts of Guarantor now or hereafter on
deposit with or held by Lender and all other sums at any time
credited by or owing from Lender to Guarantor. The rights and
remedies of Lender hereunder are in addition to other rights and
remedies (including, without limitation, other rights of setoff)
which Lender may have.
9. All present and future indebtedness of Borrower to
Guarantor is hereby subordinated to the Guaranteed Obligations
(except for management fees paid or to be paid by Borrower to
Guarantor for leasing and managing the property prior to the
occurrence and continuance of an Event of Default under the Loan
Documents). All sums paid to Guarantor on account of such
present and future indebtedness shall be held in trust by
Guarantor for the benefit of Lender and upon demand shall
forthwith be paid to Lender without affecting the liability of
Guarantor under this Guaranty Agreement. Upon the request of
Lender, Guarantor shall execute, deliver, and endorse to Lender
such documents and instruments as Lender deems reasonably
necessary or appropriate to perfect, preserve, and enforce its
rights hereunder.
10. No amendment or waiver of any provision of this
Guaranty Agreement nor consent to any departure by the Guarantor
therefrom shall in any event be effective unless the same shall
be in writing and signed by Lender. No failure on the part of
Lender to exercise, and no delay in exercising, any right
hereunder shall operate as a waiver thereof; nor shall any single
or partial exercise hereunder preclude any other or further
exercise thereof or the exercise of any other right. The
remedies herein provided are cumulative and not exclusive of any
remedies provided by law.
11. If any acknowledgment or new promise, whether by
payment of principal or interest or otherwise and whether by
Borrower or Guarantor, with respect to any of the Guaranteed
Obligations shall be made, the statute of limitations on any of
the Guaranteed Obligations shall run from the date of such
acknowledgment or new promise and, if the period of such statute
of limitations shall have expired, such acknowledgement or new
promise shall prevent the operation of such statute of
limitations.
12. This Guaranty Agreement is for the benefit of Lender
and its successors and assigns, and in the event of an assignment
of the Guaranteed Obligations, or any part thereof, the rights
and benefits hereunder, to the extent applicable to the
Obligations so assigned, may be transferred with such
Obligations. This Guaranty Agreement is binding not only on
Guarantor, but on Guarantor's successors and assigns.
13. Guarantor recognizes that Lender is relying upon this
Guaranty Agreement and the undertaking of Guarantor hereunder in
making a loan to Borrower under the Loan Documents and further
recognizes that the execution and delivery of this Guaranty
Agreement is a material inducement to Lender in entering into the
Loan Agreement and the Loan Documents.
14. This Guaranty Agreement is executed and delivered as an
incident to a lending transaction performable in Harris County,
Texas, and shall be governed by and construed in accordance with
the laws of the State of Texas. Venue in any dispute relating to
this Guaranty Agreement, whether in federal or state court, shall
be laid in Harris County, Texas.
15. Guarantor shall pay on demand all reasonable attorneys'
fees and all other costs and expenses incurred by Lender in
connection with the preparation, enforcement, or collection of
this Guaranty Agreement.
16. Except as herein provided, Guarantor hereby waives
promptness, diligence, demand of payment, notice of acceptance of
this Guaranty Agreement, presentment, notice of protest, notice
of dishonor, notice of the incurring by Borrower of additional
Obligations, and all other notices and demands with respect to
the Guaranteed Obligations and this Guaranty Agreement.
17. Guarantor acknowledges that this Guaranty Agreement is
executed in connection with the Loan Agreement and that Guarantor
is aware of the Obligations of Borrower and the terms thereunder.
Guarantor agrees that Lender may exercise any and all rights
granted to it under the Loan Documents without affecting the
validity or enforceability of this Guaranty Agreement.
18. Guarantor subordinates all claims, direct or indirect,
absolute or contingent against Borrower arising from or relating
to this Guaranty Agreement or Guarantor's performance hereunder
to the rights of Lender to collect the Guaranteed Obligations.
Without limiting the foregoing, Guarantor subordinates all rights
of reimbursement, exoneration, indemnification and/or contribution
from Borrower for any payment by Guarantor under this Guaranty
to the right of Lender to collect the Guaranteed Obligations,
and agrees not to institute any action or to attempt to collect
from the Borrower any such claim or claims until such time as the
Guaranteed Obligations are paid in full. Guarantor waives all
right of subrogation to the claims of Lender which may otherwise
arise from such payment until such time as the Guaranteed
Obligations have been paid in full.
19. Guarantor hereby expressly waives any right to trial by
jury in any action or legal proceeding arising out of or relating
to the Loan Documents on the transactions contemplated thereby or
hereby.
20. Guarantor acknowledges and agrees that the
consideration received and to be received by Guarantor as a
result of Borrower and Lender entering into the Loan Documents
and Guarantor executing and delivering this Guaranty Agreement is
fair, reasonable and/or adequate consideration, and such
liability and obligation and the Loan Documents has benefitted or
may reasonably be expected to benefit Guarantor directly or
indirectly.
21. Notwithstanding the provisions of Sections 51.003,
51.004, and 51.005 of the Texas Property Code (as same may be
amended from time to time), and to the extent permitted by law,
Guarantor agrees that Lender shall be entitled to seek a
deficiency judgment from Borrower and Guarantor and any other
party obligated on the Note or guaranty of the Note equal to the
difference between the amount owing on the Note and the amount
for which the property described in the Deed of Trust
("Property") was sold pursuant to a judicial or nonjudicial
foreclosure sale (if Lender elects to foreclose the Property).
Guarantor expressly recognizes that this Section shall
constitute a waiver of the above cited provisions of the Texas
Property Code which would otherwise permit Borrower and Guarantor
and other persons against whom recovery of the deficiency is
sought or Guarantor independently (even absent the initiation of
deficiency proceedings against him) to present competent evidence
of the fair market value of the Property as of the date of
foreclosure and offset against any deficiency the amount by which
the foreclosure sale price is determined to be less than the fair
market value.
Guarantor further recognizes and agrees that this waiver
will create an irrebuttable presumption that the foreclosure sale
price is equal to the fair market value of the Property for
purposes of calculating deficiencies owed by the Borrower and
Guarantor, other borrowers on the Note, guarantors and others
against whom recovery of a deficiency is sought.
Alternatively, in the event this Section is determined by a
court of competent jurisdiction to be unenforceable, the
following shall be the basis for the finder of fact's
determination of fair market value of the Property as of the date
of foreclosure sale in proceedings governed by Sections 51.003,
51.004, and 51.005 of the Texas Property Code (as amended from
time to time):
(a) The Property shall be valued in an "as is"
condition as of the date of the foreclosure sale, without
any assumption or expectation that the Property will be
repaired or improved in any manner before a resale of the
Property after foreclosure;
(b) The valuation shall be based upon an assumption
that the foreclosure purchaser desires a prompt resale of
the Property for cash promptly (but no later than twelve
months) following the foreclosure sale;
(c) All reasonable closing costs customarily borne by
the seller in a commercial real estate transaction should be
deducted from the gross fair market value of the Property,
including, without limitation, brokerage commissions, title
insurance, a survey of the Property, tax prorations,
attorney's fees, and marketing costs;
(d) The gross fair market value of the Property shall
be further discounted to account for any estimated holding
costs associated with maintaining the Property pending sale,
including, without limitation, utilities expenses, property
management fees, taxes, and assessments (to the extent not
accounted for in (c) above) and other maintenance fees; and
(e) Any expert opinion testimony given or considered
with a determination of the fair market value of the
Property must be given by persons having at least five years
experience in appraising property similar to the Property
and who have conducted and prepared a complete written
appraisal of the Property taking into consideration the
factors set forth above.
22. To the maximum extent not prohibited by law, any
controversy, dispute or claim arising out of, in connection with,
or relating to this Agreement, including but not limited to any
claim based on or arising from an alleged tort or an alleged
breach of any agreement contained in this Agreement, shall, at
the request of any party hereto (either before or after the
commencement of judicial proceedings), be settled by arbitration
pursuant to Title 9 of the United States Code, which the parties
hereto acknowledge and agree applies to the transaction involved
herein, and in accordance with the Commercial Arbitration Rules
of the American Arbitration Association (the "AAA"). In any
such arbitration proceeding: (i) all statutes of limitations
which would otherwise be applicable shall apply; and (ii) the
proceeding shall be conducted in Houston, Texas, by a single
arbitrator, if the amount in controversy is $1 Million or less,
or by a panel of three arbitrators if the amount in controversy
is over $1 Million. All arbitrators shall be selected by the
process of appointment from a panel pursuant to Section 13 of the
AAA Commercial Arbitration Rules and each arbitrator shall have
AAA acknowledged expertise in the subject matter of the
controversy, dispute or claim. Any award rendered in any such
arbitration proceeding shall be final and binding, and judgment
upon any such award may be entered in any court having
jurisdiction.
If Guarantor or Lender files a proceeding in any court to
resolve any such controversy, dispute or claim, such action shall
not constitute a waiver of the right of such party or a bar to the
right of any other party to seek arbitration under the provisions
of this Section of that or any other claim, dispute or controversy,
and the court shall, upon motion of any party to the proceeding,
direct that such controversy, dispute or claim be arbitrated
in accordance with this Section.
Notwithstanding any of the foregoing, the parties hereto
agree that no arbitrator or panel of arbitrators shall possess or
have the power to (i) assess punitive damages, (ii) dissolve,
rescind or reform (except that the arbitrator may construe
ambiguous terms) this Agreement, (iii) enter judgment on the debt
evidenced by the above-described Note, (iv) exercise equitable
powers or issue or enter any equitable remedies or (v) allow
discovery of attorney/client privileged information, and the
parties hereby waive the aforementioned remedies. The Commercial
Arbitration Rules of the AAA are hereby modified to this extent
for the purpose of arbitration of any dispute, controversy or
claim arising out of, in connection with, or relating to this
Agreement.
No provision of, or in the exercise of any rights under,
this Section shall limit or impair the right of Lender before,
during or after any arbitration proceeding to: (i) exercise
self-help remedies such as setoff or repossession; (ii) foreclose
(judicially or otherwise) any lien on or security interest in the
Property described in the Loan Agreement; or (iii) obtain
emergency relief from a court of competent jurisdiction to
prevent the dissipation, damage, destruction, transfer,
hypothecation, pledging or concealment of assets or of collateral
securing the Note or this Guaranty. Such emergency relief may
be in the nature of, but is not limited to: prejudgment
attachments, garnishments, sequestrations, appointments of
receivers, or other emergency injunctive relief to preserve the
status quo.
In the event that applicable law prohibits the submission of
a particular controversy, dispute or claim arising out of or in
connection with this Guaranty or the transactions contemplated
herein to arbitration, Guarantor and Lender agree that any
actions or proceedings in connection therewith shall be tried and
litigated only in the state and federal courts located in the
jurisdiction in which the Property is located or any other court
in which Lender shall initiate legal or equitable proceedings
that has subject matter jurisdiction over the matter in
controversy. Guarantor and Lender, to the extent permitted by
applicable law, waive any right to assert the doctrine of forum
non-conveniens or to object to venue to the extent of any
proceeding is brought in accordance with this paragraph.
23. In addition to the foregoing, Guarantor shall be liable
for any loss, damage or cost resulting from the following: (A)
Fraud or intentional misrepresentation by Borrower, Guarantor or
any other guarantor in connection with obtaining the loan
evidenced by the Note or in complying with the obligations under
the Note, this Guaranty Agreement, the Deed of Trust, and any
Loan Documents. In which event, the "loss" shall be deemed to
include, but not be limited to, any loss of sums owing under the
Note, the Deed of Trust and any other Loan Documents; (B) Failure
to remit to Lender insurance proceeds, condemnation awards, or
other sums or payments attributable to the Property in accordance
with the provisions of the Deed of Trust, except to the extent
that Borrower did not have the legal right, because of a
bankruptcy, receivership, or similar judicial proceeding, to
direct disbursement of such sums or payments; (C) Failure to
apply to principal and interest under the Note, payment of
utilities, taxes and assessments, ground rents, if any, on the
Property as they become due and payable, or otherwise remit to
Lender all rents, profits, issues, products and income of the
Property received following and during the continuance of any
Event of Default (including any received or collected by or on
behalf of Borrower after an Event of Default, except to the
extent that Borrower did not have the legal right, because of a
bankruptcy, receivership or similar judicial proceeding, to
direct the disbursement of such sums); (D) Removal of any
personalty or fixtures constituting a portion of the Property
unless replaced by an item of equal or greater value; (E) Failure
to pay or bond around any valid mechanics', materialman's or
similar lien claimants' liens arising from work performed or
materials furnished in connection with the Property prior to any
sale or foreclosure thereof; (F) Failure to deliver to Lender
following and during the continuance of an Event of Default and
upon demand by Lender, all security deposits received by Borrower
in connection with the Property, subject to the rights of tenants
under tenants leases; (G) Any waste of or damage to the Property
caused by the wilful or wanton acts or omissions of Borrower or
its agents, or any deferred maintenance of the Property caused by
the inaction of Borrower in which case the "loss" shall be deemed
to include all costs of repair, replacement or rehabilitation of
the Property less the balance in any replacement reserve
accounts, (for purposes of this Section 23, "DEFERRED
MAINTENANCE" shall mean a failure to maintain the Property in
good repair (reasonable wear and tear excepted) by failing to
replace and/or repair improvements, fixtures, and appliances as
needed to maintain the Property in good repair (reasonable wear
and tear excepted) and the equivalent of its original condition,
reasonable wear and tear excepted); and (H) any obligation of
Borrower, Guarantor and/or any other guarantor arising under
Section 2.4 of the Deed of Trust and/or that certain Certificate
and Indemnification Regarding Hazardous Substances (the
"ENVIRONMENTAL INDEMNITY AGREEMENT") executed by Borrower and
Guarantor and dated of even date herewith, in which event the
"loss" shall include all obligations of Borrower and Guarantor
under the Environmental Indemnity Agreement.
EXECUTED as of this the 25th day of November, 1996.
GUARANTOR:
GRAND COURT LIFESTYLES, INC.
By: /s/ Dorian Luciani
------------------------------
Dorian Luciani, Senior Vice
President
AGREED and ACCEPTED:
BANK UNITED
By: /s/ Casey Moore
-------------------------------
Casey Moore
Vice President
Exhibit 10.2(d)
GUARANTY AGREEMENT
------------------
WHEREAS, the execution of this Guaranty Agreement is a condition to
LEISURE CENTERS LLC-1, a Texas limited liability company ("Borrower"),
borrowing money from BANK UNITED, a federal savings bank ("Lender"), in the
aggregate principal amount of SEVEN MILLION THREE HUNDRED THOUSAND AND
NO/100 DOLLARS ($7,300,000.00), evidenced by that certain Promissory Note
described below.
NOW, THEREFORE, for valuable consideration, the receipt and adequacy
of which are hereby acknowledged, the undersigned, GRAND COURT LIFESTYLES,
INC., a Delaware corporation(the "Guarantor"), hereby irrevocably and
unconditionally guarantees to Lender the prompt payment and performance of
the Guaranteed Obligations (hereinafter defined), this Guaranty Agreement
being upon the following terms:
1. The term "Guaranteed Obligations," as used herein, consists of:
(a) that certain Promissory Note ("Note") of even date herewith, in the
original principal amount of $7,300,000.00, executed by Borrower and
payable to the order of Lender; (b) interest on any of the indebtedness
described in (a) preceding; (c) any renewal or extension of the
indebtedness described in (a) through (b) preceding, or any part thereof;
(d) all other Obligations of Borrower to Lender under that certain Loan
Agreement ("Loan Agreement") of even date herewith; (e) all other
Obligations of Borrower to Lender under the Loan Documents as that term is
defined in the Loan Agreement; and (f) completion of construction of the
improvements to the Property, as hereinafter defined, in compliance with
the plans and specifications approved by Lender and all applicable zoning
and building codes.
2. This instrument shall be an absolute, continuing, irrevocable,
and unconditional guaranty, of payment and performance and not a guaranty
of collection, and Guarantor shall remain liable on its obligations
hereunder until the payment and performance in full of the Guaranteed
Obligations.
3. If Guarantor becomes liable for any indebtedness owing by
Borrower to Lender by endorsement or otherwise, other than under this
Guaranty Agreement, such liability shall not be in any manner impaired or
affected hereby, and the rights of Lender hereunder shall be cumulative of
any and all other rights that Lender may ever have against Guarantor. The
exercise by Lender of any right or remedy hereunder or under any other
instrument, or at law or in equity, shall not preclude the concurrent or
subsequent exercise of any other right or remedy.
4. In the event of default (and the expiration of any applicable
notice and grace periods and written notice of same from Lender to
Guarantor) by Borrower in payment or performance of the Guaranteed
Obligations, or any part thereof, when such Guaranteed Obligations becomes
due, whether by its terms, by acceleration, or otherwise, Guarantor shall
promptly pay the amount due thereon to Lender upon written demand in lawful
money of the United States and it shall not be necessary for Lender, in
order to enforce such payment by Guarantor, first to institute suit or
exhaust its remedies against Borrower or others liable on such Guaranteed
Obligations, or to enforce any rights against any collateral which shall
ever have been given to secure such Guaranteed Obligations.
5. Guarantor hereby agrees that its obligations under this Guaranty
Agreement shall not be released, diminished, impaired, reduced, or affected
by the occurrence of any reason or event, including, without limitation,
one or more of the following events, whether or not with notice to or the
consent of Guarantor: (a) the taking or accepting of collateral as
security for any or all of the Guaranteed Obligations or the release,
surrender, exchange, or subordination of any collateral now or hereafter
securing any or all of the Guaranteed Obligations; (b) any partial release
of the liability of Guarantor hereunder, or the release of any other
guarantor from liability for any or all of the Guaranteed Obligations; (c)
any disability of Borrower, or the dissolution, insolvency, or bankruptcy
of Borrower, Guarantor, or any party at any time liable for the payment of
any or all of the Guaranteed Obligations; (d) any renewal, extension,
modification, waiver, amendment, or rearrangement of any or all of the
Guaranteed Obligations or any instrument, document, or agreement
evidencing, securing, or otherwise relating to any or all of the Guaranteed
Obligations; (e) any adjustment, indulgence, forbearance, waiver, or
compromise that may be granted or given by Lender to Borrower, Guarantor,
or any other party ever liable for any or all of the Guaranteed
Obligations; (f) any neglect, delay, omission, failure, or refusal of
Lender to take or prosecute any action for the collection of any of the
Guaranteed Obligations or to foreclose or take or prosecute any action in
connection with any instrument, document, or agreement evidencing,
securing, or otherwise relating to any or all of the Guaranteed
Obligations; (g) the unenforceability or invalidity of any or all of the
Guaranteed Obligations or any instrument, document, or agreement
evidencing, securing, or otherwise relating to any or all of the Guaranteed
Obligations; (h) any payment by Borrower to Lender is determined by a court
to constitute a paws or if for any other reason Lender is required to
refund such payment or pay the amount thereof to someone else; (i) the
settlement or compromise of any of the Guaranteed Obligations; (j) the
failure of Lender to perfect or continue any security interest or lien
securing any or all of the Guaranteed Obligations; or (k) the failure of
Lender to preserve, protect, maintain, or insure any collateral securing
any or all of the Guaranteed Obligations.
6. Guarantor represents and warrants to Lender as follows:
(a) Guarantor has the power and authority to execute, deliver
and perform its obligations under this Guaranty Agreement and this
Guaranty Agreement constitutes the legal, valid and binding obligation
of Guarantor, enforceable against Guarantor in accordance with its
terms, except as limited by bankruptcy, insolvency, or other laws of
general application relating to the enforcement of creditor's rights.
(b) The execution, delivery, and performance by Guarantor of
this Guaranty Agreement do not and will not violate any law or any
order of any court, governmental authority or arbitrator and do not
and will not conflict with, result in a breach of, or constitute a
default under, or result in the imposition of any lien upon any assets
of Guarantor pursuant to the provisions of any indenture, mortgage,
deed of trust, security agreement, franchise, permit, license, or
other instrument or agreement to which Guarantor or its properties is
bound.
(c) No authorization, approval, or consent of, and no filing or
registration with, any court, governmental authority, or third party
is necessary for the execution, delivery, or performance by Guarantor
of this Guaranty Agreement or the validity or enforceability thereof.
7. Guarantor covenants and agrees that, as long as the Guaranteed
Obligations or any part thereof is outstanding:
(a) Guarantor shall furnish management prepared financial
statements to Lender for each fiscal quarter which statements shall be
due thirty (30) days after the end of each fiscal quarter. Guarantor
shall also furnish to Lender audited annual financial statements
beginning with the fiscal year ending January 31, 1997 containing
balance sheets (reflecting, without limitation, all contingent
liabilities), income statements and statements of changes in financial
position (reflecting, without limitation, cash flow changes) as at the
end of such fiscal year and for the 12-month period then ended, in
each case setting forth in comparative form the figures for the
preceding fiscal year. All financial statements will be prepared in
reasonable detail, and all of the above prepared in accordance with
GAAP, consistently followed and applied and containing only
qualifications acceptable to Lender, in Lender's sole discretion.
Guarantor's financial statements shall be prepared by the authorized
officers of each familiar with and knowledgeable of the information
therein presented and responsible for the supervision of the
preparation of said financial statements for Guarantor.
(b) Within sixty days after the filing of Guarantor's tax
return, Guarantor shall furnish Lender with a copy of Guarantor's
United States income tax return, as filed with the Internal Revenue
Service, together with any and all exhibits and schedules filed in
connection therewith, beginning with the tax year ending January 31,
1997, and continuing annually thereafter.
(c) Guarantor will furnish promptly to Lender written notice of
the occurrence of any default under this Guaranty Agreement or an
Event of Default under the Loan Documents of which Guarantor has
knowledge.
(d) Guarantor will furnish promptly to Lender such additional
information concerning Guarantor as Lender may reasonably request.
(e) Guarantor will obtain at any time and from time to time all
authorizations, consents or approvals as shall now or hereafter be
necessary or desirable under all applicable laws or regulations or
otherwise in connection with the execution, delivery and performance
of this Guaranty Agreement and will promptly furnish copies thereof to
Lender.
8. Upon the occurrence of an Event of Default (as defined in the
Loan Agreement), Lender shall have the right to set off and apply against
this Guaranty Agreement or the Guaranteed Obligations or both, without
notice to Guarantor, any and all deposits (general or special, time or
demand, provisional or final) or other sums at any time credited by or
owing from Lender to Guarantor whether or not the Guaranteed Obligations is
then due and irrespective of whether or not Lender shall have made any
demand under this Guaranty Agreement. As security for this Guaranty
Agreement and the Guaranteed Obligations, Guarantor hereby grants Lender a
security interest in all money, instruments, and other property of
Guarantor now or hereafter held by Lender, including, without limitation,
property held in safekeeping. In addition to Lender's right of setoff and
as further security for this Guaranty Agreement and the Guaranteed
Obligations, Guarantor hereby grants Lender a security interest in all
deposits (general or special, time or demand, provisional or final) and all
other accounts of Guarantor now or hereafter on deposit with or held by
Lender and all other sums at any time credited by or owing from Lender to
Guarantor. The rights and remedies of Lender hereunder are in addition to
other rights and remedies (including, without limitation, other rights of
setoff) which Lender may have.
9. All present and future indebtedness of Borrower to Guarantor is
hereby subordinated to the Guaranteed Obligations (except for management
fees paid or to be paid by Borrower to Guarantor for leasing and managing
the property prior to the occurrence and continuance of an Event of Default
under the Loan Documents). All sums paid to Guarantor on account of such
present and future indebtedness shall be held in trust by Guarantor for the
benefit of Lender and upon demand shall forthwith be paid to Lender without
affecting the liability of Guarantor under this Guaranty Agreement. Upon
the request of Lender, Guarantor shall execute, deliver, and endorse to
Lender such documents and instruments as Lender deems reasonably necessary
or appropriate to perfect, preserve, and enforce its rights hereunder.
10. No amendment or waiver of any provision of this Guaranty
Agreement nor consent to any departure by the Guarantor therefrom shall in
any event be effective unless the same shall be in writing and signed by
Lender. No failure on the part of Lender to exercise, and no delay in
exercising, any right hereunder shall operate as a waiver thereof; nor
shall any single or partial exercise hereunder preclude any other or
further exercise thereof or the exercise of any other right. The remedies
herein provided are cumulative and not exclusive of any remedies provided
by law.
11. If any acknowledgment or new promise, whether by payment of
principal or interest or otherwise and whether by Borrower or Guarantor,
with respect to any of the Guaranteed Obligations shall be made, the
statute of limitations on any of the Guaranteed Obligations shall run from
the date of such acknowledgment or new promise and, if the period of such
statute of limitations shall have expired, such acknowledgement or new
promise shall prevent the operation of such statute of limitations.
12. This Guaranty Agreement is for the benefit of Lender and its
successors and assigns, and in the event of an assignment of the Guaranteed
Obligations, or any part thereof, the rights and benefits hereunder, to the
extent applicable to the Obligations so assigned, may be transferred with
such Obligations. This Guaranty Agreement is binding not only on
Guarantor, but on Guarantor's successors and assigns.
13. Guarantor recognizes that Lender is relying upon this Guaranty
Agreement and the undertaking of Guarantor hereunder in making a loan to
Borrower under the Loan Documents and further recognizes that the execution
and delivery of this Guaranty Agreement is a material inducement to Lender
in entering into the Loan Agreement and the Loan Documents.
14. This Guaranty Agreement is executed and delivered as an incident
to a lending transaction performable in Harris County, Texas, and shall be
governed by and construed in accordance with the laws of the State of
Texas. Venue in any dispute relating to this Guaranty Agreement, whether
in federal or state court, shall be laid in Harris County, Texas.
15. Guarantor shall pay on demand all reasonable attorneys' fees and
all other costs and expenses incurred by Lender in connection with the
preparation, enforcement, or collection of this Guaranty Agreement.
16. Except as herein provided, Guarantor hereby waives promptness,
diligence, demand of payment, notice of acceptance of this Guaranty
Agreement, presentment, notice of protest, notice of dishonor, notice of
the incurring by Borrower of additional Obligations, and all other notices
and demands with respect to the Guaranteed Obligations and this Guaranty
Agreement.
17. Guarantor acknowledges that this Guaranty Agreement is executed
in connection with the Loan Agreement and that Guarantor is aware of the
Obligations of Borrower and the terms thereunder. Guarantor agrees that
Lender may exercise any and all rights granted to it under the Loan
Documents without affecting the validity or enforceability of this Guaranty
Agreement.
18. Guarantor subordinates all claims, dirct or indirect, absolute
or contingent, against Borrower arising from or relating to this Guaranty
Agreement or Guarantor's performance hereunder to the rights of Lender
to collect the Guaranteed Obligations. Without limiting the foregoing,
Guarantor subordinates all rights of reimbursement, exoneration,
indemnification and/or contribution from Borrower for any payment by
Guarantor under this Guaranty to the right of Lender to collect the
Guaranteed Obligations, and agrees not to institute any action or to
attempt to collect from the Borrower any such claim or claims until such
time as the Guaranteed Obligations are paid in full. Guarantor waives
all right of subrogation to the claims of Lender which may otherwise
arise from such payment until such time as the Guaranteed Obligations
have been paid in full.
19. Guarantor hereby expressly waives any right to trial by jury in
any action or legal proceeding arising out of or relating to the Loan
Documents on the transactions contemplated thereby or hereby.
20. Guarantor acknowledges and agrees that the consideration received
and to be received by Guarantor as a result of Borrower and Lender entering
into the Loan Documents and Guarantor executing and delivering this
Guaranty Agreement is fair, reasonable and/or adequate consideration, and
such liability and obligation and the Loan Documents has benefitted or may
reasonably be expected to benefit Guarantor directly or indirectly.
21. Notwithstanding the provisions of Sections 51.003, 51.004, and
51.005 of the Texas Property Code (as same may be amended from time to
time), and to the extent permitted by law, Guarantor agrees that Lender
shall be entitled to seek a deficiency judgment from Borrower and Guarantor
and any other party obligated on the Note or guaranty of the Note equal to
the difference between the amount owing on the Note and the amount for
which the property described in the Deed of Trust ("Property") was sold
pursuant to a judicial or nonjudicial foreclosure sale (if Lender elects to
foreclose the Property).
Guarantor expressly recognizes that this Section shall constitute a
waiver of the above cited provisions of the Texas Property Code which would
otherwise permit Borrower and Guarantor and other persons against whom
recovery of the deficiency is sought or Guarantor independently (even
absent the initiation of deficiency proceedings against him) to present
competent evidence of the fair market value of the Property as of the date
of foreclosure and offset against any deficiency the amount by which the
foreclosure sale price is determined to be less than the fair market value.
Guarantor further recognizes and agrees that this waiver will create
an irrebuttable presumption that the foreclosure sale price is equal to the
fair market value of the Property for purposes of calculating deficiencies
owed by the Borrower and Guarantor, other borrowers on the Note, guarantors
and others against whom recovery of a deficiency is sought.
Alternatively, in the event this Section is determined by a court of
competent jurisdiction to be unenforceable, the following shall be the
basis for the finder of fact's determination of fair market value of the
Property as of the date of foreclosure sale in proceedings governed by
Sections 51.003, 51.004, and 51.005 of the Texas Property Code (as amended
from time to time):
(a) The Property shall be valued in an "as is" condition as of
the date of the foreclosure sale, without any assumption or
expectation that the Property will be repaired or improved in any
manner before a resale of the Property after foreclosure;
(b) The valuation shall be based upon an assumption that the
foreclosure purchaser desires a prompt resale of the Property for cash
promptly (but no later than twelve months) following the foreclosure
sale;
(c) All reasonable closing costs customarily borne by the seller
in a commercial real estate transaction should be deducted from the
gross fair market value of the Property, including, without
limitation, brokerage commissions, title insurance, a survey of the
Property, tax prorations, attorney's fees, and marketing costs;
(d) The gross fair market value of the Property shall be further
discounted to account for any estimated holding costs associated with
maintaining the Property pending sale, including, without limitation,
utilities expenses, property management fees, taxes, and assessments
(to the extent not accounted for in (c) above) and other maintenance
fees; and
(e) Any expert opinion testimony given or considered with a
determination of the fair market value of the Property must be given
by persons having at least five years experience in appraising
property similar to the Property and who have conducted and prepared a
complete written appraisal of the Property taking into consideration
the factors set forth above.
22. To the maximum extent not prohibited by law, any controversy,
dispute or claim arising out of, in connection with, or relating to this
Agreement, including but not limited to any claim based on or arising from
an alleged tort or an alleged breach of any agreement contained in this
Agreement, shall, at the request of any party hereto (either before or
after the commencement of judicial proceedings), be settled by arbitration
pursuant to Title 9 of the United States Code, which the parties hereto
acknowledge and agree applies to the transaction involved herein, and in
accordance with the Commercial Arbitration Rules of the American
Arbitration Association (the "AAA"). In any such arbitration proceeding:
(i) all statutes of limitations which would otherwise be applicable shall
apply; and (ii) the proceeding shall be conducted in Houston, Texas, by a
single arbitrator, if the amount in controversy is $1 Million or less, or
by a panel of three arbitrators if the amount in controversy is over $1
Million. All arbitrators shall be selected by the process of appointment
from a panel pursuant to Section 13 of the AAA Commercial Arbitration Rules
and each arbitrator shall have AAA acknowledged expertise in the subject
matter of the controversy, dispute or claim. Any award rendered in any
such arbitration proceeding shall be final and binding, and judgment upon
any such award may be entered in any court having jurisdiction.
If Guarantor or Lender files a proceeding in any court to resolve any
such controversy, dispute or claim, such action shall not constitute a
waiver of the right of such party or a bar to the right of any other
party to seek arbitration under the provisions of this Section of that
or any other claim, dispute or controversy, and the court shall, upon
motion of any party to the proceeding, direct that such controversy,
dispute or claim be arbitrated in accordance with this Section.
Notwithstanding any of the foregoing, the parties hereto agree that no
arbitrator or panel of arbitrators shall possess or have the power to (i)
assess punitive damages, (ii) dissolve, rescind or reform (except that the
arbitrator may construe ambiguous terms) this Agreement, (iii) enter
judgment on the debt evidenced by the above-described Note, (iv) exercise
equitable powers or issue or enter any equitable remedies or (v) allow
discovery of attorney/client privileged information. The Commercial
Arbitration Rules of the AAA are hereby modified to this extent for the
purpose of arbitration of any dispute, controversy or claim arising out of,
in connection with, or relating to this Agreement. The parties further
agree to waive, each to the other, any claims for punitive damages, and
agree that neither an arbitrator nor any court shall have the power to
assess punitive damages.
No provision of, or in the exercise of any rights under, this Section
shall limit or impair the right of Lender before, during or after any
arbitration proceeding to: (i) exercise self-help remedies such as setoff
or repossession; (ii) foreclose (judicially or otherwise) any lien on or
security interest in the Property described in the Loan Agreement; or (iii)
obtain emergency relief from a court of competent jurisdiction to prevent
the dissipation, damage, destruction, transfer, hypothecation, pledging or
concealment of assets or of collateral securing the Note or this Guaranty.
Such emergency relief may be in the nature of, but is not limited to:
prejudgment attachments, garnishments, sequestrations, appointments of
receivers, or other emergency injunctive relief to preserve the status quo.
In the event that applicable law prohibits the submission of a
particular controversy, dispute or claim arising out of or in connection
with this Guaranty or the transactions contemplated herein to arbitration,
Guarantor and Lender agree that any actions or proceedings in connection
therewith shall be tried and litigated only in the state and federal courts
located in the jurisdiction in which the Property is located or any other
court in which Lender shall initiate legal or equitable proceedings that
has subject matter jurisdiction over the matter in controversy. Guarantor
and Lender, to the extent permitted by applicable law, waive any right to
assert the doctrine of forum non-conveniens or to object to venue to the
extent of any proceeding is brought in accordance with this paragraph.
23. In addition to the foregoing, Guarantor shall be liable for any
loss, damage or cost resulting from the following: (A) Fraud or intentional
misrepresentation by Borrower, Guarantor or any other guarantor in
connection with obtaining the loan evidenced by the Note or in complying
with the obligations under the Note, this Guaranty Agreement, the Deed of
Trust, and any Loan Documents. In which event, the "loss" shall be deemed
to include, but not be limited to, any loss of sums owing under the Note,
the Deed of Trust and any other Loan Documents; (B) Failure to remit to
Lender insurance proceeds, condemnation awards, or other sums or payments
attributable to the Property in accordance with the provisions of the Deed
of Trust, except to the extent that Borrower did not have the legal right,
because of a bankruptcy, receivership, or similar judicial proceeding, to
direct disbursement of such sums or payments; (C) Following the occurrence
of and during the continuance of any Event of Default, failure to remit to
Lender or otherwise apply all Income from the Property (as hereinafter
defined) to (i) principal and interest under the Note, (ii) payment of
utilities, taxes and assessments, and (iii) ground rents, if any, on the
Property as they become due and payable, (for purposes of this Section 23,
the term "Income from the Property" shall mean all rents, profits, issues,
products and income of the Property (including any received or collected by
or on behalf of Borrower after an Event of Default has occurred and during
its continuance, except to the extent that Borrower did not have the legal
right, because of a bankruptcy, receivership or similar judicial
proceeding, to direct the disbursement of such sums); (D) Removal of any
personalty or fixtures constituting a portion of the Property unless
replaced by an item of equal or greater value; (E) Failure to pay or bond
around any valid mechanics', materialman's or similar lien claimants' liens
arising from work performed or materials furnished in connection with the
Property prior to any sale or foreclosure thereof; (F) Failure to deliver
to Lender following and during the continuance of an Event of Default and
upon demand by Lender, all security deposits received by Borrower in
connection with the Property, subject to the rights of tenants under
tenants' leases; (G) Any waste of or damage to the Property caused by the
wilful or wanton acts or omissions of Borrower or its agents, or any
deferred maintenance of the Property caused by the inaction of Borrower in
which case the "loss" shall be deemed to include all costs of repair,
replacement or rehabilitation of the Property less the balance in any
replacement reserve accounts, (for purposes of this Section 23, "DEFERRED
MAINTENANCE" shall mean a failure to maintain the Property in good repair
(reasonable wear and tear excepted) by failing to replace and/or repair
improvements, fixtures, and appliances as needed to maintain the Property
in good repair (reasonable wear and tear excepted) and the equivalent of
its original condition, (reasonable wear and tear excepted); and (H) any
obligation of Borrower, Guarantor and/or any other guarantor arising under
Section 2.4 of the Deed of Trust and/or that certain Certificate and
Indemnification Regarding Hazardous Substances (the "ENVIRONMENTAL
INDEMNITY AGREEMENT") executed by Borrower and Guarantor and dated of even
date herewith, in which event the "loss" shall include all obligations of
Borrower and Guaral Indemnity Agreement.
EXECUTED as of this the 29th day of January, 1997.
GUARANTOR:
GRAND COURT LIFESTYLES, INC.
By: /s/ Dorian Luciani
------------------------------------
Dorian Luciani, Senior Vice President
AGREED and ACCEPTED:
BANK UNITED
By: /s/ Casey Moore
-------------------------
Casey Moore
Vice President
Exhibit 10.3
MASTER DEVELOPMENT AGREEMENT
between
CAPSTONE CAPITAL CORPORATION
a Maryland corporation
and
GRAND COURT LIFESTYLES, INC.
a Delaware corporation
September 18, 1996
<PAGE>
TABLE OF CONTENTS
1. DEFINITIONS AND USE OF CERTAIN TERMS . . . . . . . . . . 1
1.1 Definitions . . . . . . . . . . . . . . . . . . . . 1
-----------
1.2 Other Terms . . . . . . . . . . . . . . . . . . . . 1
-----------
2. TERM . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3. COMMITMENT TO FUND . . . . . . . . . . . . . . . . . . . 2
3.1 Total Commitment Amount . . . . . . . . . . . . . . 2
-----------------------
3.2 Termination of Commitment . . . . . . . . . . . . . 2
-------------------------
3.3 Event of Default . . . . . . . . . . . . . . . . . 2
----------------
3.4 Cancellation and Termination Fees . . . . . . . . . 2
---------------------------------
4. PROJECT DEVELOPMENT . . . . . . . . . . . . . . . . . . 2
4.1 Project Identification and Approval . . . . . . . . 2
-----------------------------------
4.2 Site Acquisition . . . . . . . . . . . . . . . . . 3
----------------
4.3 Development of Approved Projects . . . . . . . . . 4
--------------------------------
4.4 Lease of Approved Projects . . . . . . . . . . . . 4
--------------------------
4.5 Expenses . . . . . . . . . . . . . . . . . . . . . 5
--------
4.6 Opinion of Counsel . . . . . . . . . . . . . . . . 5
------------------
4.7 Guaranties . . . . . . . . . . . . . . . . . . . . 5
----------
4.8 Option to Sell . . . . . . . . . . . . . . . . . . 5
--------------
4.9 Closing of Transfer of Project Site . . . . . . . . 5
-----------------------------------
5. REPRESENTATIONS OF DEVELOPER . . . . . . . . . . . . . . 6
5.1 Formation and Qualification . . . . . . . . . . . . 6
---------------------------
5.2 Transaction Documents . . . . . . . . . . . . . . . 6
---------------------
5.3 Financial Information . . . . . . . . . . . . . . . 6
---------------------
5.4 Litigation and Other Matters . . . . . . . . . . . 7
----------------------------
5.5 Documents and Other Information . . . . . . . . . . 7
-------------------------------
6. FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . 7
7. EVENTS OF DEFAULT AND REMEDIES OF CAPSTONE . . . . . . . 7
7.1 Events of Default . . . . . . . . . . . . . . . . . 7
-----------------
7.2 Remedies of Capstone . . . . . . . . . . . . . . . 9
--------------------
7.3 Remedies Cumulative . . . . . . . . . . . . . . . . 9
-------------------
8. IMPOSITIONS . . . . . . . . . . . . . . . . . . . . . . 9
9. PERMITTED CONTESTS . . . . . . . . . . . . . . . . . . . 10
10. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . 10
10.1 Waiver of Trial by Jury . . . . . . . . . . . . . . 10
-----------------------
10.2 Notice . . . . . . . . . . . . . . . . . . . . . . 10
------
10.3 Governing Law . . . . . . . . . . . . . . . . . . . 12
-------------
10.4 Assignment . . . . . . . . . . . . . . . . . . . . 12
----------
10.5 Entire Agreement . . . . . . . . . . . . . . . . . 12
----------------
10.6 Amendments . . . . . . . . . . . . . . . . . . . . 12
----------
10.7 Waiver of Breach . . . . . . . . . . . . . . . . . 12
----------------
10.8 Severability . . . . . . . . . . . . . . . . . . . 12
------------
10.9 Captions and Headings . . . . . . . . . . . . . . . 12
---------------------
10.10 Counterparts . . . . . . . . . . . . . . . . . 12
------------
10.11 Binding Effect . . . . . . . . . . . . . . . . 12
--------------
10.12 No Rule of Construction . . . . . . . . . . . 12
-----------------------
10.13 No Third Party Beneficiary . . . . . . . . . . 13
--------------------------
10.14 Time is of the Essence . . . . . . . . . . . . 13
----------------------
<PAGE>
MASTER DEVELOPMENT AGREEMENT
THIS MASTER DEVELOPMENT AGREEMENT (this "Agreement") is made
and entered into as of September 18, 1996, between CAPSTONE
CAPITAL CORPORATION, a Maryland corporation ("Capstone") and
GRAND COURT LIFESTYLES, INC., a Delaware corporation
("Developer"):
RECITALS
WHEREAS, Capstone wishes to acquire various tracts of land
in various locations , on which to develop up to four assisted
and independent living facilities consisting of up to 150 units
each, and to subsequently develop such facilities;
WHEREAS, Developer has the experience with and the knowledge
of the acquisition, development and operation of the projects
previously described; and
WHEREAS, Capstone wishes to employ Developer to provide
Capstone with assistance in the site acquisition and development
of the projects previously described and, once developed, to
lease the same to Developer under long-term, triple net pass
through leases as more particularly set forth below.
WITNESSETH
NOW, THEREFORE, in consideration of the premises and the
mutual promises herein contained, and other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, Capstone and the Developer do hereby agree as
follows:
1. DEFINITIONS AND USE OF CERTAIN TERMS.
1.1 Definitions. The definitions of certain terms used
-----------
herein are set forth on Exhibit A attached hereto.
---------
1.2 Other Terms. The term "document" is used in its
-----------
broadest sense and encompasses agreements, certificates,
opinions, consents, instruments and other written material of
every kind. The terms "including" and "include" mean "including
without limitation" and "including, but not limited to,". The
term "any" as a modifier to any noun, shall be construed to mean
"any and/or all" preceding the same noun in the plural. The
terms "herein" "hereunder" and other similar compounds of the
word "here" refer to the entire document in which the term
appears and not to any particular provision or section of the
document. In all cases where Capstone's approval or consent is
required hereunder, such approval or consent must be in writing
and, except as herein otherwise provided, may be withheld in
Capstone's sole and absolute discretion.
2. TERM. This Agreement shall be effective as of the date
hereof and, except as otherwise provided, shall continue in
effect for two years (the "Commitment Termination Date"). The
modification or termination of this Agreement shall not effect
the rights or obligations of either party under any Development
Agreement or Lease entered into between Capstone and Developer
prior to the effective date of the modification or termination.
3. COMMITMENT TO FUND.
3.1 Total Commitment Amount. Subject to the terms and
-----------------------
conditions hereinafter set forth, Capstone agrees to fund the
acquisition and development of each of the Approved Projects from
time to time up to the Total Commitment Amount. Unless sooner
terminated pursuant to the provisions of Sections 3.2 or 3.3, the
Commitment shall be in effect from the date hereof until the
Commitment Termination Date. The Total Commitment Amount
available for funding hereunder for one or more Approved Projects
shall be reduced from time to time by the aggregate amount of the
Maximum Project Amounts set forth in the executed Development
Agreements.
3.2 Termination of Commitment. Developer may at any time
-------------------------
prior to the Commitment Termination Date, terminate the
Commitment in full by giving three Business Days' prior written
notice thereof to Capstone and paying in full the Cancellation
Fee pursuant to Section 3.4. No termination of the Commitment or
reduction of the Total Commitment Amount shall be subject to
reinstatement.
3.3 Event of Default. Upon the occurrence of an Event of
----------------
Default, Capstone may terminate the Commitment by written notice
to Developer.
3.4 Cancellation and Termination Fees. In the event all or
---------------------------------
a portion of the Commitment is terminated by Developer pursuant
to Section 3.2 or by Capstone pursuant to Section 3.3, Developer
shall pay a cancellation fee, which fee (the "Cancellation Fee")
shall be equal to one percent of the unfunded portion of the
Total Commitment Amount. In the event that on the Commitment
Termination Date any portion of the Total Commitment Amount
remains unfunded, Developer shall pay to Capstone a termination
fee, which fee (the "Termination Fee") shall be equal to one
percent of such unfunded amount in excess of $2,000,000.00. For
purposes of calculating the Cancellation Fee or the Termination
Fee, any portion of the Total Commitment Amount that is
designated for disbursement under a Development Agreement
executed pursuant to an Approved Development Plan shall be deemed
as funded even though some amounts remain undisbursed as of the
Commitment Termination Date.
4. PROJECT DEVELOPMENT.
4.1 Project Identification and Approval. As soon as
-----------------------------------
reasonably practicable after the date hereof, Developer shall
identify up to four proposed Projects (the "Proposed Projects"),
and shall submit to Capstone a plan for each of the Proposed
Projects, which plan (the "Improvement Plan") shall include (i)
all plans, specifications, drawings, details and proforma budgets
necessary or appropriate for the construction, development, use
and operation of an assisted and independent living facility
containing up to approximately 150 units and approximately
130,000 gross square feet depending upon the number of units,
(ii) site analysis and description for the acquisition of the
real estate necessary or appropriate in connection with such
assisted and independent living facility, (iii) analysis and
description for the acquisition and installation of all personal
property necessary or appropriate for the use and operation of
the assisted and independent living facility, (iv) preliminary
estimates by Developer for the Real Estate Acquisition Amount
necessary or appropriate in connection with the Proposed Project,
and (v) and all other items that Capstone may reasonably request
in connection with the acquisition, construction, development and
operation of the Proposed Project. Capstone shall approve or
disapprove each Improvement Plan within 30 days after receipt of
the last of the foregoing items; provided that Capstone shall use
its best efforts to identify objections to the Improvement Plan
as the various items are received from Developer and shall
provide Developer with written notice of the same within ten days
after identifying any such objections. Each Improvement Plan is
subject to approval by Capstone and may be amended, modified or
supplemented by Developer with Capstone's approval (such approved
Improvement Plan, as from time to time amended, modified or
supplemented with Capstone's approval, the "Approved Development
Plan"). Each Approved Development Plan may include a lease-up
allocation of up to $450,000.00 and a contingency amount and a
developer's fee of up to five percent each of the total estimated
hard costs of construction of the Approved Project. Each
Approved Development Plan shall include reasonable estimates by
Capstone of the Real Estate Acquisition Amount for such Approved
Project, together with a line item budget (the "Approved Budget")
for such Approved Project with respect to which Capstone has
agreed to fund construction advances pursuant to the provisions
of the Development Agreement (and a copy of which Approved Budget
shall be attached to the applicable Development Agreement), as
originally approved in writing by Capstone and as supplemented
and modified in writing from time to time in accordance with the
terms of this Agreement and the Development Agreement. In the
event that Capstone shall disapprove any of the proposed
Improvement Plans or any amendment, modification or supplement
thereof, Capstone and Developer shall consult with each other
concerning Capstone's objections, and the parties shall in good
faith attempt to make appropriate modifications to satisfy such
objections. In no event shall Capstone be required to fund any
portion of the Total Commitment Amount other than (A) pursuant to
an Approved Development Plan or (B) at Capstone's option, to
reimburse Capstone for any Real Estate Acquisition Amount. For
purposes of this Agreement, the total amount reflected on the
applicable Approved Budget to be advanced for the development of
an Approved Project, including, but not limited to, the
applicable Real Estate Acquisition Amount, commitment fees, title
insurance premiums, attorneys fees incurred in connection with
the applicable Approved Project, the lease-up allocation, the
contingency amount, the developer's fee, the costs of
construction and development of such Approved Project as
contemplated by this Agreement, shall be referred to as the
"Maximum Project Amount."
4.2 Site Acquisition. Developer shall be responsible for
----------------
the identification and analysis of the real estate for the
Proposed Projects and shall assist Capstone in the negotiations
for the purchase of the real estate necessary or appropriate in
connection with an Approved Project (the "Project Site"). The
Real Estate Acquisition Amounts for the acquisition of each
Project Site shall be funded by Capstone out of the Total
Commitment Amount. In the event that any Project Site is owned
by Developer, Developer shall sell the same to Capstone for an
amount equal to the total costs invested in such Project Site by
Developer and as approved by Capstone. All out-of-pocket
expenses incurred by Capstone in connection with the acquisition
of the Project Sites, including the purchase price, closing
costs, title premiums, recording fees and taxes, environmental
reports, surveys, appraisals, reasonable attorneys' fees and
expenses (collectively, the "Real Estate Acquisition Amount(s)")
shall be included in the determination of the Maximum Project
Amount for the Approved Project of which such Project Site is a
part and shall be deducted from the Total Commitment Amount as
described in Section 3.1 hereof.
4.3 Development of Approved Projects. Simultaneously with
--------------------------------
the purchase by Capstone of any Project Site, Developer shall
execute and deliver to Capstone, or to a Subsidiary of Capstone,
a development agreement for the development of the Approved
Project associated with such Project Site in substantially the
form attached hereto as Exhibit B (the "Development Agreement"),
---------
together with all guarantees and other documents contemplated
herein and therein, agreeing, among other things, (i) to develop
and construct the Approved Project for an amount not to exceed
the Maximum Project Amount, (ii) to obtain or execute a
construction contract for the Approved Project with a fixed price
or guaranteed maximum amount, such contract to be in a form and
with a general contractor reasonably acceptable to Capstone with
appropriate bonds for payment and performance issued by companies
reasonably acceptable to Capstone, (iii) to commence construction
of the Approved Project within 30 days after the closing of the
acquisition of the Project Site, and (iv) to complete
construction of the Approved Project (as defined in Section 10.1
of the Development Agreement) within 15 months after commencement
of construction. The parties acknowledge that Developer may
negotiate a more comprehensive design and build contract with the
general contractor for a particular Approved Project. In such
event, the parties will make necessary and appropriate changes to
the Development Agreement for such Approved Project to reflect
the design and build arrangement.
4.4 Lease of Approved Projects. Simultaneously with the
--------------------------
purchase by Capstone of any Project Site, Developer shall execute
and deliver to Capstone a lease agreement for the Approved
Project associated with such Project Site, which lease agreement
(i) shall be in substantially the form attached hereto as Exhibit
-------
C the (the "Lease"), (ii) for the first Lease, shall include an
-
initial term of 15 years from the completion of the Approved
Project pursuant to the terms of Section 10.1 of the Development
Agreement but in no event later than 15 months from the date of
the Development Agreement for the applicable Approved Project,
(iii) for all Leases executed subsequent to the first Lease,
shall include a term with the same expiration date as the first
Lease, (iv) shall provide for an initial annual rental rate equal
to the sum of the total Maximum Project Amount disbursed or
estimated to be disbursed in connection with such Approved
Project times the greater of (A) the Treasury Yield in effect ten
-----
days prior to the date of the completion of the Approved Project
pursuant to Section 10.1 of the Development Agreement plus 3.5%
and (B) 9.75 %. Notwithstanding the foregoing, it is the intent
of the parties that all amounts disbursed under the Commitment be
reimbursed by Developer or included within one of the Leases,
regardless of whether such amounts can be identified with any
particular Approved Project. Therefore, the parties agree that
any amounts disbursed by Capstone hereunder that are not
reimbursed by Developer, and which amounts cannot be associated
with any particular Approved Project, shall be allocated by
Capstone to one or more of the Approved Projects.
4.5 Expenses. To the extent not directly paid by Developer
--------
or included in an Approved Budget, all costs and expenses
incurred by Capstone in connection with this Agreement (the
"Transaction Expenses") shall be reimbursed by Developer to
Capstone within ten days after demand therefor by Capstone, or,
at Developer's option, included as an amount funded under the
applicable Development Agreement for purposes of calculating the
initial minimum rent due under the applicable Lease.
4.6 Opinion of Counsel. Simultaneously with the execution
------------------
hereof, Developer shall deliver or cause to be delivered to
Capstone an opinion of counsel, in form and substance reasonably
satisfactory to Capstone, regarding the due authorization,
execution and enforceability of this Agreement and such other
matters as Capstone may reasonably request.
4.7 Guaranties. In the event that Developer uses a
----------
Subsidiary (or an entity comprised of its Subsidiaries) to
execute and deliver any of the Development Agreements or Leases,
Developer agrees to absolutely and unconditionally guarantee the
full, prompt and faithful performance by such Subsidiary of all
covenants and obligations to be performed by such Subsidiary
under any such Development Agreement or Lease. In the event
Capstone uses a Subsidiary (or an entity comprised of its
Subsidiaries) to execute and deliver any of the Development
Agreements, Capstone agrees to absolutely and unconditionally
guarantee the full, prompt and faithful performance by such
Subsidiary of all covenants and obligations to be performed by
such Subsidiary under any such Development Agreement.
4.8 Option to Sell. In the event that Developer fails to
--------------
obtain a building permit for any Approved Project and commence
construction of the same within six months after the execution of
the applicable Development Agreement, then Capstone may, at its
sole option, require Developer to purchase the applicable Project
Site by delivery of written notice (the "Sale Notice") to
Developer at any time after such six-month period but prior to
the issuance of a building permit. The purchase price for the
Project Site shall be, as of the date of conveyance of the
Project Site pursuant to the terms of Section 4.9, the sum of the
Real Estate Acquisition Amount associated with the applicable
Project Site plus interest on such amount at the rate of the
Prime Rate plus one percent plus a cancellation fee equal to ten
percent of the sum of the Real Estate Acquisition Amount
associated with the applicable Project Site (collectively, the
"Termination Amount"). The conveyance of the Project Site by
Capstone and the payment of the Termination Amount shall be on
the terms, conditions and limitations set forth in Section 4.9.
4.9 Closing of Transfer of Project Site. In the event that
-----------------------------------
Capstone exercises its right to sell the Project Site to
Developer pursuant to Section 4.8, Developer shall pay the
Termination Amount to Capstone as of the date of the conveyance
of the Project Site to Developer. The closing with respect to a
Capstone's exercise of its right to sell a Project Site to
Developer pursuant to Section 4.8 shall be no later than 45 days
after the Sale Notice. Upon receipt from Developer of the
applicable Termination Amount, together with any other amounts
owing to Capstone hereunder, Capstone shall deliver to Developer
an appropriate instrument of conveyance (in substantially the
same form used to convey the Project Site to Capstone) effective
to convey the entire interest of Capstone in and to the Project
Site to Developer, and such other standard documents usually and
customarily prepared in connection with such transfers, free and
clear of all encumbrances other than (A) those that Developer has
agreed hereunder to pay or discharge, (B) any other encumbrances
permitted to be imposed on the Project Site under the provisions
of this Agreement, the applicable Development Agreement or
through the actions of Developer, and (C) any matters affecting
title to the Project Site on or as of the date hereof. The
Termination Amount shall be paid in cash to Capstone, or as
Capstone may direct, in immediately available funds. All
expenses of such conveyance, including the cost of title
examination or standard coverage title insurance, attorneys' fees
incurred by Capstone in connection with such conveyance, transfer
taxes, recording fees and similar charges shall be paid by
Developer at the time of closing.
5. REPRESENTATIONS OF DEVELOPER. Developer represents and
warrants to Capstone that:
5.1 Formation and Qualification. Developer is a
---------------------------
corporation duly incorporated, validly existing and in good
standing under the Laws of the State of Delaware, and has all
requisite power and authority to enter into this Agreement, any
of the Development Agreements, any of the Leases or any
guarantees and other documents contemplated therein
(collectively, the "Transaction Documents") and to conduct its
business and own and lease its properties.
5.2 Transaction Documents. The execution, delivery and
---------------------
performance of the Transaction Documents by Developer are within
such Developer's power and authority, have been duly authorized
by all necessary action and do not and will not (a) require any
Authorization which has not been obtained (except to the extent
otherwise indicated in Section 4.1 with respect to Authorizations
required in connection with any of the Proposed Projects), (b)
contravene the Charter Documents of Developer, any applicable
Laws or Other Requirements or any agreement or restriction
binding on or affecting Developer or its property, or (c) result
in or require the creation or imposition of any Lien or Right of
Others upon or with respect to any property now owned by
Developer. No Authorization of Developer (except which has
already been obtained) is required for the enforcement by
Capstone of its Remedies under the Transaction Documents. Each
Transaction Document, when executed and delivered, will
constitute the legal, valid and binding obligation of Developer,
enforceable against such Developer in accordance with its terms,
except as enforcement may be limited by principles of equity,
bankruptcy, insolvency or other similar Laws affecting the rights
of creditors generally.
5.3 Financial Information. (a) The Financial Statements of
---------------------
Developer which have been furnished to Capstone fairly present
Developer's financial condition as at the dates of such Financial
Statements and the results of operations for the periods covered
by such Financial Statements, and since the respective dates of
such Financial Statements, there has been no material adverse
change in the financial condition, operations, properties or
prospects of Developer. (b) Developer has filed all tax returns
required to be filed by it, and has paid all Taxes due pursuant
to such returns or in respect of any of its properties (except
for any such Taxes which are being actively contested in good
faith by appropriate proceedings), and to the current, actual
knowledge of Developer without special inquiry or investigation,
no basis exists for additional assessments which have not been
adequately reserved against in the Financial Statements referred
to above or otherwise disclosed in writing to Capstone.
5.4 Litigation and Other Matters. Except as otherwise
----------------------------
disclosed in writing to Capstone: (a) no actions or other
proceedings affecting or relating to Developer or any of the
Proposed Projects are pending or, to the best knowledge of
Developer, threatened, and (b) no actions or other proceedings
are pending or, to the best knowledge of Developer, threatened
against or affecting Developer or any of its property which (as
regards both clauses (a) and (b) immediately preceding), if
determined adversely to such Developer, could materially impair
the financial condition, operations, properties or prospects of
such Developer or the ability of such Developer to perform its
obligations under the Transaction Documents.
5.5 Documents and Other Information. All Documents and
-------------------------------
other information delivered to Capstone pursuant to any of the
Transaction Documents are and will be complete and correct in all
material respects at the time of delivery to Capstone.
6. FINANCIAL STATEMENTS. As soon as available and in any event
within 90 days after the end of each Fiscal Year, Developer shall
deliver its Financial Statements as of the end of such Fiscal
Year, setting forth in comparative form the figures for the
previous Fiscal Year. As soon as available and in any event
within 45 days after the end of each of the first three quarterly
periods of each Fiscal Year, Developer shall deliver its
Financial Statements as of the end of such period, setting forth
in comparative form the figures for the previous Fiscal Year,
which statements may be internal statements and need not be
audited.
7. EVENTS OF DEFAULT AND REMEDIES OF CAPSTONE.
7.1 Events of Default. The occurrence of any one or more
-----------------
of the following events shall constitute an Event of Default:
(a) Developer shall fail to pay all or any portion of
any amount due under this Agreement within 10 days after
written notice from Capstone to Developer; or
(b) Developer shall fail to perform or observe any
other material term, covenant or condition of this Agreement
or any document executed in connection herewith and such
failure is not cured by Developer within a period of 30 days
after receipt by Developer of notice thereof from Capstone,
unless such failure cannot with due diligence be cured
within a period of 30 days, in which case such failure shall
not be deemed to continue if Developer proceeds promptly and
with due diligence to cure the failure and diligently
completes the curing thereof (as soon as reasonably
possible); or
(c) any Representation proves to have been incorrect
in any material respect when made; or
(d) Developer is enjoined by any court or other
Governmental Agency from constructing any of the Approved
projects or entering into any of the Transaction Documents
and such injunction continues unreleased and unstayed for 45
days; or
(e) Developer is dissolved or liquidated or merged
with or into any other Person; or for any period of more
than ten days Developer ceases to exist in its present form
and (where applicable) in good standing and duly qualified
under the Laws of the state of Delaware; or all or
substantially all of the assets of Developer are sold or
otherwise transferred; provided that the foregoing shall not
operate to prevent (i) merger or consolidation of any
Subsidiary into Developer or a sale, transfer or lease of
assets by any Subsidiary to Developer or (ii) a merger of
any Person into Developer; provided that Developer shall be
the surviving or continuing corporation and, after giving
effect to such merger or consolidation: (A) Developer shall
be in full compliance with the terms of this Agreement and
(B) the management of Developer shall be substantially
unchanged; or
(f) The Person or Persons who own at least 51% of the
Voting Shares of Developer as of the date of this Agreement
cease to own at least 51% of the Voting Shares of Developer;
Developer assigns or attempts to assign any rights or
interests under any Transaction Document without the prior
written consent of Capstone; or any Transaction Document
becomes or is claimed by Developer to be unenforceable
against Developer; or
(g) Developer is subject to an order for relief by the
bankruptcy court, or is unable or admits in writing its
inability to pay its debts as they mature or makes an
assignment for the benefit of creditors; or Developer
applies for or consents to the appointment of any receiver,
trustee or similar official for it or for all or any part of
its property (or any such appointment is made without its
consent and the appointment continues undischarged and
unstayed for 60 days); or Developer institutes or consents
to any bankruptcy, insolvency, reorganization, arrangement,
readjustment of debt, dissolution, custodianship,
conservatorship, liquidation, rehabilitation or similar
proceeding relating to it or to all or any part of its
property under the Laws of any jurisdiction (or any such
proceeding is instituted without its consent and continues
undismissed and unstayed for 60 days); or any judgment,
writ, warrant of attachment or execution or similar process
is issued or levied against any property of Developer and is
not released, vacated or fully bonded within 60 days after
its issue or levy; or
(h) Developer shall default beyond any applicable
grace period contained in one or more major credit
facilities which by their terms would permit an outstanding
balance equal to or greater than $5,000,000.00 in the
aggregate to be accelerated and the same shall be
accelerated by the lender or other applicable party; or
(i) Developer shall fail to maintain a Consolidated
Net Worth of at least $30,000,000.00; provided, however, if
Developer shall complete an initial public offering of
equity securities, Developer shall fail to maintain a
Consolidated Net Worth of at least 75% of its Consolidated
Net Worth that existed immediately after the completion of
such initial public offering, but not less than
$30,000,000.00.
7.2 Remedies of Capstone. Upon the occurrence of any Event
--------------------
of Default, Capstone may, without further notice to or demand, if
any, upon Developer, which are expressly waived by Developer
(except for notices or demands otherwise required by applicable
Laws to the extent not effectively waived by Developer and any
notices or demands specified in the Transaction Documents),
exercise any one or more of the following Remedies as Capstone
may determine:
(a) Capstone may, at its option, terminate the
Commitment, or Capstone may waive the Event of Default or,
without waiving, determine, upon terms and conditions
satisfactory to Capstone, to make further disbursements of
the Commitment;
(b) Capstone may perform any of Developer's
obligations in such manner as Capstone may reasonably
determine; or
(c) Capstone may proceed to protect, exercise and
enforce any and all other Remedies provided under the
Transaction Documents or by applicable Laws.
All reasonable costs, expenses, charges and advances of
Capstone in exercising any such Remedies shall be payable by
Developer to Capstone as Transaction Expenses in accordance with
Section 4.5.
7.3 Remedies Cumulative. Each of the Remedies of Capstone
-------------------
provided in the Transaction Documents is cumulative and not
exclusive of, and shall not prejudice, any other Remedy provided
in the Transaction Documents or by applicable Laws. Each Remedy
may be exercised from time to time as often as deemed necessary
by Capstone, and in such order and manner as Capstone may
determine. No failure or delay on the part of Capstone in
exercising any Remedy shall operate as a waiver of such Remedy;
nor shall any single or partial exercise of any Remedy preclude
any other or further exercise of such Remedy or of any other
Remedy. No application of payments, or any advances or other
action by Capstone, will cure or waive any Event of Default or
prevent acceleration, or continued acceleration, of amounts
payable under the Transaction Documents or prevent the exercise,
or continued exercise, of any Remedies of Capstone.
8. IMPOSITIONS. Prior to the commencement of the term of any
of the Leases, Developer will pay, or cause to be paid, all
Impositions before any fine, penalty, interest or cost may be
added for non-payment, such payments to be made directly to the
taxing authorities where feasible, and Developer will promptly,
upon request, furnish to Capstone copies of official receipts or
other satisfactory proof evidencing such payments. Developer's
obligation to pay such Impositions and the amount thereof shall
be deemed absolutely fixed upon the date such Impositions become
payable without a penalty.
9. PERMITTED CONTESTS. Notwithstanding any provision of this
Agreement to the contrary, Developer may contest by appropriate
action any Imposition, and Capstone shall have no right to pay
such Imposition on Developer's behalf during the pendency of such
contest, provided that (a) no "Event of Default" has occurred and
is continuing under this Agreement, any Development Agreement or
under any document or instrument executed in connection therewith
(the "Documents"); (b) Developer has given Capstone written
notice that Developer is contesting the application,
interpretation or validity of the law, regulation, order or
agreement pertaining to the Imposition by appropriate legal or
administrative proceedings conducted in good faith and with due
diligence and dispatch; (c) such contest shall not subject
Capstone or any of the Capstone's affiliates or any assignee of
all or any portion of the Capstone's interest in any of the
Projects to civil or criminal liability and does not jeopardize
any such party's interest in the such Project; and (d) Developer
shall give such security or assurances as may be reasonably
required by Capstone to ensure ultimate compliance with all legal
or contractual requirements pertaining to the Imposition (and
payment of all costs, expenses, interest and penalties in
connection therewith ) and to prevent any sale, forfeiture or
loss by reason of nonpayment or noncompliance.
10. MISCELLANEOUS.
10.1 Waiver of Trial by Jury. THE PARTIES TO THIS AGREEMENT
-----------------------
DESIRE TO AVOID THE ADDITIONAL TIME AND EXPENSE RELATED TO A JURY
TRIAL OF ANY DISPUTES ARISING HEREUNDER. THEREFORE, IT IS
MUTUALLY AGREED BY AND BETWEEN THE PARTIES HERETO, AND FOR THEIR
SUCCESSORS AND ASSIGNS, THAT THEY SHALL AND HEREBY DO WAIVE TRIAL
BY JURY OF ANY CLAIM, COUNTERCLAIM, OR THIRD-PARTY CLAIM,
INCLUDING ANY AND ALL CLAIMS OF INJURY OR DAMAGES, BROUGHT BY
EITHER PARTY AGAINST THE OTHER ARISING OUT OF OR IN ANY WAY
CONNECTED WITH THIS AGREEMENT AND THE RELATIONSHIP WHICH ARISES
HEREFROM. THE PARTIES ACKNOWLEDGE AND AGREE THAT THIS WAIVER IS
KNOWINGLY, FREELY AND VOLUNTARILY GIVEN, IS DESIRED BY ALL
PARTIES, AND IS IN THE BEST INTEREST OF ALL PARTIES.
10.2 Notice. Any notices, demands, approvals and other
------
communications provided for in this Agreement shall be in writing
and shall be delivered by telephonic facsimile, overnight air
courier, personal delivery or registered or certified U.S. Mail
with return receipt requested, postage paid, to the appropriate
party at its address as follows:
If to Capstone:
CAPSTONE CAPITAL CORPORATION
1000 Urban Center Drive, Suite 630
Birmingham, Alabama 35242
Attention: Mr. John W. McRoberts
Telephone: (205) 967-2092
Telecopy: (205) 967-9066
with a copy to:
Thomas A. Ansley, Esq.
Sirote & Permutt, P. C.
2222 Arlington Avenue
Birmingham, Alabama 35205
Telephone: (205) 930-5300
Telecopy: (205) 930-5301
If to Developer:
GRAND COURT LIFESTYLES, INC.
One Executive Drive
Fort Lee, New Jersey 07024
Attention: Mr. Paul Jawin
Telephone: (201) 947-7322
Telecopy: (201) 947-6663
with a copy to:
Robert W. Strauss, Esq.
Strasburger & Price, L.L.P.
901 Main Street, Suite 4300
Dallas, Texas 75202
Telephone: (214) 651-4629
Telecopy: (214) 651-4330
Addresses for notice may be changed from time to time by
written notice to all other parties. Any communication given by
mail will be effective (i) upon the earlier of (a) three business
days following deposit in a post office or other official
depository under the care and custody of the United States Postal
Service or (b) actual receipt, as indicated by the return
receipt; (ii) if given by telephone facsimile, when sent; and
(iii) if given by personal delivery or by overnight air courier,
when delivered to the appropriate address set forth.
10.3 Governing Law. This Agreement shall be interpreted
-------------
according to the laws of the State of Alabama. All disputes
hereunder shall be adjudicated in the federal courts sitting in
the State of Alabama, or should such courts refuse to recognize
jurisdiction over such matters, the courts of the State of
Alabama.
10.4 Assignment. Neither party shall assign their rights
----------
and obligations under this Agreement without the prior written
approval of the other party.
10.5 Entire Agreement. This Agreement constitutes the
----------------
entire Agreement and understanding of the parties with respect to
the subject matter hereof and supersedes all prior agreements,
oral or written, and all other communications between the parties
relating to such subject matter.
10.6 Amendments. This Agreement shall not be modified or
----------
amended except by mutual written agreement.
10.7 Waiver of Breach. The waiver by either party of a
----------------
breach or violation of any provisions of this Agreement shall not
operate as, or be construed to be, a waiver of any subsequent
breach of the same or other provision.
10.8 Severability. In the event any provision of this
------------
Agreement is held to be unenforceable or invalid for any reason,
this Agreement shall remain in full force and effect and
enforceable in accordance with its terms disregarding such
enforceable or invalid provision; provided, however, that in the
event that a provision of this Agreement is rendered invalid or
unenforceable and its removal has the effect of materially
altering the obligations or benefits to either party, the party
so affected shall have the right to terminate this Agreement upon
30 days' prior written notice to the other party.
10.9 Captions and Headings. The captions or headings in
---------------------
this Agreement are made for convenience and general reference
only and should not be construed to describe, define or limit the
scope and intent of the provisions of this Agreement.
10.10 Counterparts. This Agreement may be executed in
------------
one or more counterparts, all of which together shall constitute
only one Agreement.
10.11 Binding Effect. This Agreement shall be binding
--------------
and shall enure to the benefit of the parties hereto, and their
respective heirs, legatees, executors, administrators, legal
representatives, successors and assigns.
10.12 No Rule of Construction. The parties acknowledge
-----------------------
that this Agreement was initially prepared by Capstone solely as
a convenience and that all parties hereto, and their counsel,
have read and fully negotiated all of the language used in this
Agreement. The parties acknowledge that, because all parties and
their counsel participated in negotiating and drafting this
Agreement, no rule of construction shall apply to this Agreement
which construes ambiguous and unclear language in favor of or
against any party because such party drafted this Agreement.
10.13 No Third Party Beneficiary. This Agreement is
--------------------------
solely for the benefit of the parties hereto and shall not inure
to the benefit of any individual or entity not a party to this
Agreement.
10.14 Time is of the Essence. With respect to all
----------------------
provisions of this Agreement, time is of the essence.
IN WITNESS WHEREOF, Capstone and Developer have executed
this Agreement by and through their duly authorized
representatives below, as of the day and year first written
above.
CAPSTONE:
CAPSTONE CAPITAL CORPORATION
a Maryland corporation
By /s/ John W. McRoberts
---------------------------------
John W. McRoberts
President
DEVELOPER:
GRAND COURT LIFESTYLES, INC.
a Delaware corporation
By /s/ John Luciani
---------------------------------
Its President
--------------------------------
<PAGE>
INDEX OF EXHIBITS TO
MASTER DEVELOPMENT AGREEMENT
BETWEEN CAPSTONE CAPITAL CORPORATION AND
GRAND COURT LIFESTYLES, INC.
Exhibit A - Definitions
Exhibit B - Form of Development Agreement
Exhibit C - Form of Lease Agreement
NOTE: This Index of Exhibits has been included in this
Agreement solely for the convenience and general
reference of the parties and shall not be construed to
describe, define or limit the scope or intent of the
provisions of this Agreement.
<PAGE>
EXHIBIT A
DEFINITIONS
As used in this Agreement, the following terms shall have
the meanings as indicated:
"Approved Budget" has the meaning set forth in Section 4.1.
"Approved Development Plan" means an Improvement Plan
approved by Capstone pursuant to Section 4.1.
"Approved Project" means a Proposed Project approved by
Capstone pursuant to Section 4.1.
"Authorization" means any authorization, consent, approval,
order, license, permit, exemption or other action by or from, or
any filing, registration or qualification with, any Governmental
Agency or other Person.
"Business Day" means each Monday, Tuesday, Wednesday,
Thursday and Friday which is not a day on which national banks in
the City of Birmingham, Alabama are closed.
"Capstone" has the meaning set forth in the introductory
paragraph to this Agreement.
"Charter Documents" means (a) in the case of a corporation,
its articles of incorporation and bylaws, (b) in the case of a
partnership, its partnership agreement and any certificate or
statement of partnership, and (c) in the case of a trust or any
other entity, its formation documents, in each case as amended
from time to time.
"Commitment" means the agreement of Capstone, subject to the
terms and conditions of this Agreement, to fund up to the Total
Commitment Amount for the acquisition and development of the
Approved Projects.
"Consolidated Financial Statements" means for any Fiscal
Year, audited statements of earnings and retained earnings and of
changes in financial position for such period and for the period
from the beginning of the respective fiscal year of Developer to
the end of such period and the related balance sheet as at the
end of such period, together with the notes thereto, all in
reasonable detail and setting forth in comparative form the
corresponding figures for the corresponding period in the
preceding fiscal year of Developer, and prepared in accordance
with generally accepted accounting principles consistently
applied, except as noted.
"Consolidated Net Worth" means at any time, the sum of the
following for Developer, on a consolidated basis determined in
accordance with generally accepted accounting principles:
(a) the amount of capital or stated capital (after
deducting the cost of any treasury shares or like
interests), plus
(b) the amount of capital surplus and retained
earnings (or, in the case of a capital surplus or retained
earnings deficit, minus the amount of such deficit), minus
(c) the sum of the following (without duplication of
deductions in respect of items already deducted in arriving
at capital surplus and retained earnings): (i) unamortized
debt discount and expense; (ii) any write-up in book value
of assets resulting from a revaluation thereof subsequent to
the most recent Consolidated Financial Statement prior to
the date thereof, except any net write-up in value of
foreign currency; (iii) any write-up resulting from a
reversal of a reserve for bad debts or depreciation; and
(iv) any write-up resulting from a change in methods of
accounting for inventory.
"Developer" has the meaning set forth in the introductory
paragraph to this Agreement.
"Development Agreement" has the meaning set forth in Section
4.3.
"Events of Default" means the events set forth in Section
7.1.
"Financial Statements" means for any Fiscal Year or other
accounting period for Developer, audited statements of earnings
and retained earnings and of changes in financial position for
such period and for the period from the beginning of the
respective fiscal year of Developer to the end of such period and
the related balance sheet as at the end of such period, together
with the notes thereto, all in reasonable detail and setting
forth in comparative form the corresponding figures for the
corresponding period in the preceding Fiscal Year of Developer,
and prepared in accordance with generally accepted accounting
principles consistently applied, except as noted.
"Fiscal Year" means Developer's fiscal year, ending on
January 31 of each calendar year.
"Governmental Agency" means, as relates to one of the
Projects, (a) any government or municipality or political
subdivision of any government or municipality, (b) any
assessment, improvement, community facilities or other special
taxing district, (c) any governmental or quasi-governmental
agency, authority, board, bureau, commission, corporation,
department, instrumentality or public body, (d) any court,
administrative tribunal, arbitrator, public utility or regulatory
body, or (e) any central bank or comparable authority.
"Impositions" means, collectively, all taxes relating to the
Project Sites and the Approved Projects, including all ad
valorem, sales and use, gross receipts, action, privilege, rent
or similar taxes, assessments (including all assessments for
public improvements or benefits, whether or not commenced or
completed prior to the date hereof and whether or not to be
completed prior to the termination hereof) water, sewer or other
rents and charges, excises, tax levies, fees (including license,
permit, inspection, authorization and similar fees), and all
other governmental charges, in each case whether general or
special, ordinary or extraordinary, or foreseen or unforeseen, of
every character in respect of the Project Sites and the Approved
Projects (including all interest and penalties thereon due to any
failure in payment by Developer); provided that nothing contained
in this Agreement shall be construed to require Developer to pay
any tax based on net income (whether denominated as a franchise
or capital stock or other tax) imposed on Capstone.
"Improvement Plan" has the meaning set forth in Section 4.1.
"Laws" means, as relates to one of the Projects, all
federal, state and local laws, rules, regulations, ordinances and
codes.
"Lease" has the meaning set forth in Section 4.4.
"Lien" means any lien, mortgage, deed of trust, pledge,
security interest or other charge or encumbrance, except for ad
valorem real estate taxes that are timely paid.
"Maximum Project Amount(s)" has the meaning set forth in
Section 4.1.
"Other Requirements" means (a) the terms, conditions and
requirements of all Transaction Documents, Authorizations and
Rights of Others relating to any of the Projects and all other
Documents, agreements and restrictions relating to, binding on or
affecting any of the Projects, including covenants, conditions
and restrictions, leases, easements, reservations, rights and
rights-of-way, (b) as relates to one of the Projects,
requirements and recommendations of the soils report and any
environmental impact report or negative declaration, (c) as
relates to one of the Projects, all building, zoning, land use,
planning and subdivision requirements, and (d) as relates to one
of the Projects, requirements relating to construction of any
off-site improvements.
"Person" means any person or entity, whether an individual,
trustee, corporation, partnership, joint stock company, trust,
unincorporated organization, bank, business association or firm,
joint venture, Governmental Agency or otherwise.
"Preliminary Budget" means a line item budget for a
Proposed Project with respect to all construction costs.
"Prime Rate" means the annual rate reported by The Wall
Street Journal, Eastern Edition (or, if The Wall Street Journal
shall no longer be published or shall cease to report such rates,
then a publication or journal generally accepted in the financial
industry as authoritative evidence of prevailing commercial
lending rates), from time to time as being the prevailing prime
rate (or, if more than one such rate shall be published in any
given edition, the arithmetic mean of such rates). The prime
rate is an index rate used by The Wall Street Journal to report
prevailing lending rates and may not necessarily be the most
favorable lending rate available. Any change in the Prime Rate
hereunder shall take effect on the effective date of such change
in the prime rate as reported by The Wall Street Journal, without
notice to Developer or any other action by Capstone. Interest
shall be computed on the basis that each year contains 360 days,
by multiplying the principal amount by the per annum rate set
forth above, dividing the product so obtained by 360, and
multiplying the quotient thereof by the actual number of days
elapsed.
"Project" means the construction, development and operation
of an assisted and independent living facility including any of
the following items necessary or appropriate in connection
therewith: (i) the construction of the buildings, structures and
other improvements, including site development work (if any),
(ii) the acquisition of the real estate, and (iii) the
acquisition and installation of any personal property.
"Project Site" has the meaning set forth in Section 4.2.
"Proposed Project" has the meaning set forth in Section 4.1.
"Real Estate Acquisition Amount(s)" has the meaning set
forth in Section 4.2.
"Remedy" means any right, power or remedy.
"Representations" means the representations and warranties
of Developer set forth in Section 5 and all other
representations, warranties and certifications to Capstone in any
of the Transaction Documents or in any other document delivered
under or in connection with the Transaction Documents.
"Right of Others" means, as to any property in which a
Person has an interest, any legal or equitable claim or other
interest (other than a Lien but including a leasehold interest, a
right of first refusal or a right of repossession or removal) in
or with respect to such property held by any other Person, and
any option or right held by any other Person to acquire any such
claim or other interest or any Lien in or with respect to such
property.
"Sale Notice" has the meaning set forth in Section 4.8
"Subsidiary" means any corporation 51% of the Voting Shares
of which is owned, directly or indirectly, by Developer.
"Taxes" means, as relates to one of the Projects, all taxes,
assessments, charges, fees and levies (including interest and
penalties) imposed, assessed or collected by any Governmental
Agency.
"Termination Amount" has the meaning set forth in Section
4.8.
"Title Policy" means an Texas Insurance Commission form
Owner's Policy of Title Insurance (Form T-1), together with such
endorsements thereto as are reasonably and customarily required
by institutional purchasers of real property similar to the
Project Site, issued by a title company reasonably acceptable to
Capstone, insuring title to the fee interest in the Project Site
in Capstone, subject only to the exceptions approved by Capstone
and to the standard printed exceptions included in the Texas
standard form Owner's Policy of Title Insurance, with the
following modifications: (a) the exception for areas and
boundaries shall be modified to read "shortages in area; (b) the
exception for ad valorem taxes shall reflect only taxes for the
current and subsequent years and subsequent taxes and assessments
by any taxing authority for prior years due to change in land
usage or ownership; (c) there shall be no general exception for
visible and apparent easements or roads and highways or similar
items (with any exception for visible and apparent easements or
roads and highways or similar items to be specifically referenced
to and shown on the survey and also identified by applicable
recording information); and (e) all other exceptions shall be
modified or endorsed in a manner reasonably acceptable to
Capstone.
"Total Commitment Amount" means $39,000,000.00.
"Transaction Documents" has the meaning set forth in Section
5.1.
"Transaction Expenses" has the meaning set forth in Section
4.5.
"Treasury Yield" means as of any date the weekly average
yield on United States Treasury Securities Constant Maturity
Series issued by the United States Government for a term of ten
years, as most recently published by the Federal Reserve Board in
Federal Reserve Statistical Release H.15(519). If, with respect
to the Treasury Yield, Capstone shall determine that the sale of
Treasury Securities by the United States Government has been
suspended, or Treasury Securities are not being offered for sale,
or the weekly average yield is no longer printed by the Federal
Reserve Board in Federal Reserve Statistical Release H.15(519) or
for any other reason Capstone is not able to obtain a quotation
from the Federal Reserve for the sale of such Treasury
Securities, then Capstone shall forthwith give notice to
Developer and advise Developer of a new index for determining the
interest rate to be used in connection with this Agreement, which
rate, in the good faith judgment of Capstone, shall be
substantially equivalent to the Treasury Yield.
"Voting Shares" of any corporation means shares of any class
or classes (however designated) having ordinary voting power for
the election of at least a majority of the members of the board
of directors (or other governing bodies) of such corporation,
other than shares having such power only by reason of the
happening of a contingency.
<PAGE>
EXHIBIT B
FORM OF
DEVELOPMENT AGREEMENT
DEVELOPMENT AGREEMENT
between
CAPSTONE CAPITAL CORPORATION
a Maryland corporation
and
GRAND COURT LIFESTYLES, INC.
a Delaware corporation
________________ ___, 1996
<PAGE>
TABLE OF CONTENTS
1. DEFINITIONS AND INTERPRETATION . . . . . . . . . . . . . 1
1.1 Definitions . . . . . . . . . . . . . . . . . . . . 1
-----------
1.2 Singular and Plural Terms . . . . . . . . . . . . . 1
-------------------------
1.3 Accounting Principles . . . . . . . . . . . . . . . 1
---------------------
1.4 Exhibits Incorporated . . . . . . . . . . . . . . . 1
---------------------
1.5 References . . . . . . . . . . . . . . . . . . . . 1
----------
1.6 Other Terms . . . . . . . . . . . . . . . . . . . . 1
-----------
1.7 Headings . . . . . . . . . . . . . . . . . . . . . 2
--------
1.8 Other Documents . . . . . . . . . . . . . . . . . . 2
---------------
1.9 Intention . . . . . . . . . . . . . . . . . . . . . 2
---------
2. RECITALS . . . . . . . . . . . . . . . . . . . . . . . . 2
3. OWNER'S COMMITMENT TO FUND . . . . . . . . . . . . . . . 2
3.1 Terms of the Commitment . . . . . . . . . . . . . . 2
-----------------------
3.2 Fees Relating to Disbursements . . . . . . . . . . 2
------------------------------
3.3 Commitment Fee . . . . . . . . . . . . . . . . . . 2
--------------
3.4 Reimbursement of Owner . . . . . . . . . . . . . . 2
----------------------
4. DELIVERY OF DOCUMENTS . . . . . . . . . . . . . . . . . 3
5. DISBURSEMENTS . . . . . . . . . . . . . . . . . . . . . 3
5.1 Priority . . . . . . . . . . . . . . . . . . . . . 3
--------
5.2 Disbursement Requests . . . . . . . . . . . . . . . 4
---------------------
5.3 Manner of Disbursement . . . . . . . . . . . . . . 5
----------------------
5.4 Cost Overruns . . . . . . . . . . . . . . . . . . . 5
------------
5.5 Cost Savings . . . . . . . . . . . . . . . . . . . 5
------------
5.6 Stored Materials . . . . . . . . . . . . . . . . . 5
----------------
5.7 Balancing . . . . . . . . . . . . . . . . . . . . . 6
---------
5.8 Retainage . . . . . . . . . . . . . . . . . . . . . 7
---------
5.9 Developer's Fee . . . . . . . . . . . . . . . . . . 7
---------------
5.10 Estimated Completion Amount . . . . . . . . . . . . 7
---------------------------
5.11 Fees Relating to Estimated Completion Amount . . . 8
--------------------------------------------
6. CONDITIONS TO DISBURSEMENT . . . . . . . . . . . . . . . 8
6.1 First Disbursement . . . . . . . . . . . . . . . . 8
------------------
6.2 Any Disbursement . . . . . . . . . . . . . . . . . 10
----------------
6.3 Disbursement of Marketing and Lease-Up Allowances . 12
-------------------------------------------------
6.4 Contractor's Disbursement . . . . . . . . . . . . . 13
-------------------------
6.5 Final Disbursement . . . . . . . . . . . . . . . . 13
------------------
6.6 Disbursement of Developer's Fee . . . . . . . . . . 14
-------------------------------
7. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . 14
7.1 Formation, Qualification and Compliance . . . . . . 14
---------------------------------------
7.2 Execution and Performance of Documents . . . . . . 14
--------------------------------------
7.3 Financial and Other Information . . . . . . . . . . 15
-------------------------------
7.4 No Material Adverse Change . . . . . . . . . . . . 16
--------------------------
7.5 Tax Liability . . . . . . . . . . . . . . . . . . . 16
-------------
7.6 Government Requirements . . . . . . . . . . . . . . 16
-----------------------
7.7 No Adverse Conditions . . . . . . . . . . . . . . . 16
---------------------
7.8 Rights of Others . . . . . . . . . . . . . . . . . 16
----------------
7.9 Approved Budget . . . . . . . . . . . . . . . . . . 16
---------------
7.10 Litigation . . . . . . . . . . . . . . . . . . . . 16
----------
7.11 Project Agreements . . . . . . . . . . . . . . . . 17
------------------
7.12 Title to Assets . . . . . . . . . . . . . . . . . . 17
---------------
7.13 Name and Principal Place of Business . . . . . . . 17
------------------------------------
7.14 Hazardous Materials . . . . . . . . . . . . . . . . 17
-------------------
8. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . 17
8.1 Payment of Taxes, Assessments Costs and Expenses . 17
------------------------------------------------
8.2 Title Insurance Endorsement . . . . . . . . . . . . 18
---------------------------
8.3 Continued Compliance . . . . . . . . . . . . . . . 18
--------------------
8.4 Books and Records . . . . . . . . . . . . . . . . . 18
-----------------
8.5 Maintenance and Security of the Property . . . . . 18
----------------------------------------
8.6 Financial Statements . . . . . . . . . . . . . . . 18
--------------------
8.7 Notice of Certain Matters . . . . . . . . . . . . . 19
-------------------------
8.8 Notice of Liens . . . . . . . . . . . . . . . . . . 19
---------------
8.9 Additional Reports and Information . . . . . . . . 19
----------------------------------
8.10 Further Assurances . . . . . . . . . . . . . . . . 20
------------------
8.11 Copies of Amendments . . . . . . . . . . . . . . . 20
--------------------
8.12 Continued Existence . . . . . . . . . . . . . . . . 20
-------------------
8.13 Hazardous Materials . . . . . . . . . . . . . . . . 20
-------------------
8.14 Building Permit . . . . . . . . . . . . . . . . . . 21
---------------
8.15 Consolidated Net Worth . . . . . . . . . . . . . . 21
----------------------
8.16 Name of Facility . . . . . . . . . . . . . . . . . 22
----------------
9. NEGATIVE COVENANTS. . . . . . . . . . . . . . . . . . . 22
9.1 Liens on Property . . . . . . . . . . . . . . . . . 22
-----------------
9.2 Liens on Personal Property . . . . . . . . . . . . 22
--------------------------
9.3 Changes in Approved Budget . . . . . . . . . . . . 22
--------------------------
9.4 Assignments of Obligations . . . . . . . . . . . . 22
--------------------------
9.5 Removal of Personal Property . . . . . . . . . . . 22
----------------------------
10. CONSTRUCTION COVENANTS . . . . . . . . . . . . . . . . . 23
10.1 Commencement and Completion of Project . . . . . . 23
--------------------------------------
10.2 Offsite Improvements . . . . . . . . . . . . . . . 23
--------------------
10.3 Change Orders . . . . . . . . . . . . . . . . . . . 23
-------------
10.4 Conformity with Improvement Plans . . . . . . . . . 23
---------------------------------
10.5 Owner's Engineer . . . . . . . . . . . . . . . . . 24
----------------
10.6 Encroachments . . . . . . . . . . . . . . . . . . . 24
-------------
10.7 Entry and Inspection . . . . . . . . . . . . . . . 24
--------------------
10.8 Construction Information . . . . . . . . . . . . . 24
------------------------
10.9 Permits and Warranties . . . . . . . . . . . . . . 25
----------------------
10.10 Protection Against Liens . . . . . . . . . . . 25
------------------------
10.11 Permitted Contests . . . . . . . . . . . . . . 25
------------------
11. INSURANCE . . . . . . . . . . . . . . . . . . . . . . . 26
11.1 Policies Required . . . . . . . . . . . . . . . . . 26
-----------------
11.2 Delivery of Proceeds to Owner . . . . . . . . . . . 27
-----------------------------
11.3 Application of Casualty Insurance Proceeds . . . . 27
------------------------------------------
11.4 Disbursement of Proceeds . . . . . . . . . . . . . 28
------------------------
11.5 Failure of Conditions . . . . . . . . . . . . . . . 28
---------------------
12. CONDEMNATION . . . . . . . . . . . . . . . . . . . . . . 28
13. DEFAULTS AND REMEDIES . . . . . . . . . . . . . . . . . 29
13.1 Events of Default . . . . . . . . . . . . . . . . . 29
-----------------
13.2 Remedies Upon Default . . . . . . . . . . . . . . . 30
---------------------
13.3 Cumulative Remedies; No Waiver . . . . . . . . . . 31
------------------------------
14. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . 31
14.1 Actions . . . . . . . . . . . . . . . . . . . . . . 31
-------
14.2 Default by Owner . . . . . . . . . . . . . . . . . 32
----------------
14.3 Disclaimer . . . . . . . . . . . . . . . . . . . . 32
----------
14.4 Representations by Owner . . . . . . . . . . . . . 33
------------------------
14.5 Indemnity . . . . . . . . . . . . . . . . . . . . . 33
---------
14.6 Easements . . . . . . . . . . . . . . . . . . . . . 34
---------
14.7 Survival of Representations and Warranties . . . . 34
------------------------------------------
14.8 Notices . . . . . . . . . . . . . . . . . . . . . . 34
-------
14.9 No Third Parties Benefitted . . . . . . . . . . . . 35
---------------------------
14.10 Binding Effect . . . . . . . . . . . . . . . . 35
--------------
14.11 Counterparts . . . . . . . . . . . . . . . . . 36
------------
14.12 Prior Agreements; Amendments; Consents . . . . 36
--------------------------------------
14.13 Governing Law . . . . . . . . . . . . . . . . 36
-------------
14.14 Maximum Rate . . . . . . . . . . . . . . . . . 36
------------
14.15 Waivers . . . . . . . . . . . . . . . . . . . 37
-------
14.16 Severability of Provisions . . . . . . . . . . 38
--------------------------
14.17 Time of Essence . . . . . . . . . . . . . . . 38
---------------
<PAGE>
EXHIBITS
--------
Exhibits Description Section
Reference
"A" Definitions 1.1
"A-1" Legal Description of Property Ex. A
"B" Approved Budget Ex. A
"C" Disbursement Request Ex. A, 3.1,
5.2
"D" Architect's Completion
Certificate
"E" NOT USED
"F" Architect's Consent and
Agreement Ex. A, 4.1(a)
"G" Not Used
"H" Contractor's Consent and
Agreement 4.1(c)
"I" Environmental Indemnity
Agreement 4.1(d)
"J" Assignment of Contract 4.1(e)
<PAGE>
DEVELOPMENT AGREEMENT
THIS DEVELOPMENT AGREEMENT, dated as of
____________________, 1996 is between GRAND COURT LIFESTYLES,
INC., a Delaware corporation ("Developer"), and CAPSTONE CAPITAL
CORPORATION, a Maryland corporation ("Owner").
1. DEFINITIONS AND INTERPRETATION.
1.1 Definitions. The definitions of certain terms used
-----------
herein are set forth on Exhibit A attached hereto.
---------
1.2 Singular and Plural Terms. Any defined term used in
-------------------------
the plural in any Document shall refer to all members of the
relevant class and any defined term used in the singular shall
refer to any number of the members of the relevant class.
1.3 Accounting Principles. Any accounting term used and
----------------------
not specifically defined in any Document shall be construed in
conformity with, and all financial data required to be submitted
under any Document shall be prepared in conformity with,
generally accepted accounting principles applied on a consistent
basis.
1.4 Exhibits Incorporated. All exhibits to this Agreement,
----------------------
as now existing and as the same may from time to time be
supplemented and modified, are incorporated herein by this
reference.
1.5 References. Any reference to any Document or other
-----------
document shall include such document both as originally executed
and as it may from time to time be supplemented and modified.
References herein to Articles, Sections and Exhibits shall be
construed as references to this Agreement unless a different
document is named. References to subparagraphs shall be
construed as references to the same Section in which the
reference appears.
1.6 Other Terms. The term "document" is used in its
------------
broadest sense and encompasses agreements, certificates,
opinions, consents, instruments and other written material of
every kind. The terms "including" and "include" mean "including
without limitation". The requirement that any party "deliver"
any item to another party shall be construed to require that the
first party "deliver or cause to be delivered" such item to the
second party. The term "any" as a modifier to any noun, shall be
construed to mean "any and/or all" preceding the same noun in the
plural. The term "any" as a modifier to any noun, shall be
construed to mean "any and/or all" preceding the same noun in the
plural. The terms "herein" "hereunder" and other similar
compounds of the word "here" refer to the entire document in
which the term appears and not to any particular provision or
section of the document. In all cases where Owner's approval or
consent is required hereunder, such approval or consent may be
withheld in Owner's reasonable discretion.
1.7 Headings. All headings appearing in this Agreement and
---------
article and section headings in the Documents are for convenience
of reference only and shall be disregarded in construing this
Agreement and the Documents.
1.8 Other Documents. This Agreement shall be deemed a
----------------
supplement to the other Documents and shall not be construed as a
modification thereto. In the event of any conflict between the
provisions of this Agreement and those of any other Document, the
provisions of this Agreement shall control.
1.9 Intention. The provisions of this Section 1 shall
----------
apply in every instance except where a different meaning,
construction or reference is clearly specified and intended.
2. RECITALS. Owner holds title to the Property. Owner has
agreed to fund the cost of construction of the Improvements to
the Property, the purchase of the Personal Property and related
items, subject to and in accordance with the provisions of this
Agreement and the other Documents.
3. OWNER'S COMMITMENT TO FUND.
3.1 Terms of the Commitment. Subject to the terms and
-----------------------
conditions set forth herein, Owner agrees to fund the Maximum
Project Amount to Developer in one or more Disbursements. The
Disbursements of the Project Costs, and any distributions from
the Settlement Account, shall be solely for financing the
construction of the Project and related items in accordance with
the Improvement Plans and this Agreement, as set forth in the
Approved Budget. Each Disbursement shall be requested by
Developer pursuant to a Disbursement Request. So long as no
Event of Default has occurred and is continuing, Owner shall make
each Disbursement within ten days subsequent to the date of any
requested Disbursement by Developer.
3.2 Fees Relating to Disbursements. Except as provided in
------------------------------
Section 5.11, until the term of the Facility Lease shall have
commenced, the aggregate of all funds advanced by Owner to
Developer shall bear interest at the Base Rate. Interest shall
be computed on the basis that each year contains 360 days by
multiplying the amounts disbursed hereunder by the Base Rate,
dividing the product so obtained by 360, and then multiplying the
quotient thereof by the actual number of days elapsed. Such
interest shall be payable by Developer to Owner on the first day
of each month.
3.3 Commitment Fee. In consideration of the commitment to
--------------
make advancements pursuant to this Agreement, Developer shall pay
to Owner a commitment fee (the "Commitment Fee") on the date
hereof in the amount of one percent of the Project Costs other
than the Commitment Fee.
3.4 Reimbursement of Owner. Developer shall reimburse
----------------------
Owner (or Owner shall disburse the same to itself in accordance
with Section 5.3 for any amounts to be included in a
Disbursement) within ten days following receipt of Owner's demand
for all payments made by Owner and all costs incurred by Owner
(including appraisal fees, inspection fees and the reasonable
fees and expenses of Owner's attorneys) in connection with the
negotiation, preparation, execution, delivery, funds
administration (other than the customary duties normally
performed by Owner's staff without additional charges to Owner's
customers), modification, performance and enforcement of the
Documents and all related matters, including, but not limited to,
the following:
(a) Funds advanced by Owner pursuant to Sections
13.2(c) and 13.2(d) hereof following an Event of Default or
in connection with the performance by Owner of any
obligation that Developer has failed or refused to perform;
(b) Owner's commencement of, appearance in or defense
of, any action or proceeding purporting to affect the rights
or obligations of the Owner with respect to the Property or
of the parties to any Document, except for any action or
proceeding between Owner and Developer; and
(c) All claims, demands, causes of action,
liabilities, losses, commissions and other costs and
expenses against which the Owner has been indemnified by
Developer hereunder.
4. DELIVERY OF DOCUMENTS. In consideration of Owner's entry
into this Agreement, Developer shall deliver to Owner, in such
form and substance as Owner requires, prior to the initial
Disbursement:
(a) an Architect's Consent and Agreement executed by
the Architect substantially in the form attached as Exhibit
-------
F;
--
(b) a Contractor's Consent and Agreement executed by
the Contractor substantially in the form attached as Exhibit
-------
H;
--
(c) the Environmental Indemnity substantially in the
form attached as Exhibit I;
---------
(d) the Assignment of Contracts substantially in the
form attached as Exhibit J;
---------
(e) the Construction Contracts;
(f) the Certificate of Authority, in such form and
content as is acceptable to Owner; and
(g) such other documents, instruments, consents and
assurances as Owner may reasonably require in accordance
with the terms hereof.
5. DISBURSEMENTS.
5.1 Priority. The Maximum Project Amount or portions
--------
thereof shall be disbursed from time to time in the following
order of priority:
(a) First, if Owner so chooses and from time to time
in its sole discretion, to make payments deemed advisable by
Owner to protect the Property or Owner's interests under any
Document and to fulfill any payment obligations of Developer
under Section 8.1 and any reimbursement obligation not
timely made and required to be paid by Developer under
Section 3.4 hereof (collectively, the "Priority
Disbursements").
(b) Second, to pay for the remaining Project Costs on
a line item by line item basis in accordance with the Approved
Budget and in the order, and subject to the satisfaction of each
of the conditions, set forth in Sections 5 and 6 (collectively
the "Project Disbursements").
5.2 Disbursement Requests.
---------------------
(a) Project Disbursements shall be made only upon
Developer's written request in a Disbursement Request
containing each of the following items:
(i) a summary on a line item by line item basis
showing all amounts expended for Project Costs,
itemized in such detail as Owner may require;
(ii) for Disbursement Requests which include hard
costs, an Application and Certificate for Payment (AIA
Document G702) or other document acceptable to Owner,
containing certifications by Developer and Architect
that construction to the date of the Disbursement
Request is in accordance with the Improvement Plans and
accompanied, at the request of Owner, by invoices and
lien releases satisfactory to Owner, including in any
event partial lien releases executed by each
subcontractor who has received any payment for work
performed;
(iii) an endorsement to the Title Policy
evidencing that no mechanic's and materialmen's liens
or other encumbrances have been filed against the
Property, except as permitted herein; and
(iv) all other documents and information
reasonably required by Owner.
Disbursement Requests shall be limited to amounts
actually paid or obligations actually incurred by Developer
for labor, materials and other reasonable costs for the
Project and shall be submitted in duplicate. Disbursement
Requests may be submitted monthly but shall not be submitted
more often than once each calendar month. Notwithstanding
the foregoing, Owner may, in its sole discretion, make
Project Disbursements from time to time, in the absence of a
Disbursement Request.
(b) Except as otherwise provided herein or in any
other Document to the contrary, at the Owner's option, the
requested Disbursement shall be for an amount equal to
$100,000.00 or more.
5.3 Manner of Disbursement. Owner may, at its sole option,
----------------------
make any Disbursement by journal entry (if appropriate for
payment or reimbursement to Owner of a Priority Disbursement), by
check payable to Developer or by check payable jointly to
Developer and any laborer or supplier, or directly to the Title
Company, contractors, subcontractors, architects and other
claimants, or by any other means approved by Developer.
5.4 Cost Overruns. In the event that, for any reason, the
-------------
actual cost reasonably determined by Owner or Developer to be
required to assure completion of all matters included in any line
item in the Approved Budget exceeds the amount allocated to such
line item after application of any contingency funds or so much
thereof as shall be necessary and not previously applied and
after reallocation of any amount pursuant to Section 5.5, Owner
shall have no obligation to make further Disbursements until
Developer has paid or otherwise provided for the overrun as
required under Section 5.7. Amounts deposited by Developer in
the Settlement Account for any line item shall be held by Owner
or Owner's designated agent in trust and disbursed or caused to
be disbursed by Owner prior to the disbursement of any remaining
Project Costs for such line item; provided that Owner shall have
no obligation to Developer to supervise or otherwise ensure the
proper application of such amounts following disbursement.
5.5 Cost Savings. Upon completion of and disbursement for
------------
all matters covered by any line item in the Approved Budget, or
upon the execution of a contract or a subcontract for any line
item in an amount that is less than the amount allocated to that
line item in the Approved Budget, any remaining undisbursed
amounts allocated to that line item, or any amounts allocated to
that line item that exceed the amount of the contract or
subcontract, as the case may be, shall be reallocated to
"Contingency" in the Approved Budget and thereafter be available
for disbursement for Project Costs, subject to Owner's prior
written approval, which approval shall not be unreasonably
withheld.
5.6 Stored Materials. Owner shall have the right to
----------------
approve or disapprove specifically, in its sole but reasonable
judgement, all Disbursements for stored materials whether stored
on the Property or offsite (the "Stored Materials"). Without
limiting Owner's discretion, Owner may not approve a Disbursement
for Stored Materials unless the Disbursement Request includes
each of the following:
(a) evidence satisfactory to Owner that the Stored
Materials are included in the coverage of insurance policies
naming Owner as an additional insured;
(b) evidence satisfactory to Owner from the seller or
fabricator of the Stored Materials certifying that, upon
payment, ownership of any Stored Materials located off the
Property (the "Offsite Materials") will vest in Owner free
of any liens or claims of third parties;
(c) evidence that the seller, supplier or fabricator
acknowledges the Owner's right to enter the facility at
reasonable times to inspect or remove any Offsite Materials
(d) either (i) evidence satisfactory to Owner that the
Stored Materials are satisfactorily stored on the Property
in such a manner that they are protected against theft or
damage; or (ii) if the Stored Materials are Offsite
Materials, (1) evidence satisfactory to Owner that the
Offsite Materials are stored in a bonded warehouse or
storage yard approved by Owner; and (2) Owner shall have
received from Developer the original warehouse receipt.
With Owner's prior written approval, Stored Materials
may be stored in the yard or warehouse of the seller or
fabricator, subject to satisfaction of conditions specified
in paragraphs (a), (b) and (c) of this Section 5.6, and
provided further that Owner receives satisfactory evidence
that the Offsite Materials are protected against theft or
damage and have been suitably identified as belonging to
Developer for use in the Project. In no event shall Owner
be required to make Disbursements for Offsite Materials
until Owner has inspected and approved the Offsite Materials
or waived in writing the requirement for such inspection and
approval.
5.7 Balancing.
---------
(a) As a material condition of the commitment of Owner
to fund the Maximum Project Amount and of Owner's duty to
disburse the proceeds thereof, Developer covenants to pay
all Project Costs described in the Approved Budget in excess
of the Maximum Project Amount. Owner shall be obligated to
disburse proceeds of the Maximum Project Amount only when
the Maximum Project Amount is "in balance." The Maximum
Project Amount shall be "in balance" only at such times as
Developer shall have invested sufficient funds toward the
payment of Project Costs described in the Approved Budget so
that the undisbursed portion of the Maximum Project Amount
together with all retained amounts for each line item and
all amounts allocated and reallocated to contingency, shall,
on a line item by line item basis, be sufficient to pay all
Project Costs described in the Approved Budget. Amounts
allocated and reallocated to contingency shall be applied on
a line item by line item basis to any line item which is not
in balance, before any Developer investment is required. If
contingency funds are not available at the time a Developer
investment is made, but contingency funds become thereafter
available, then the contingency funds shall be used and
Developer's investment shall be immediately returned to the
extent of the available contingency funds.
(b) A determination as to whether or not the Maximum
Project Amount is "in balance" may be made by Owner at any
time, including at each time a Disbursement Request is made
by Developer. For purposes of each Disbursement Request,
the Maximum Project Amount shall be deemed to be "in
balance" when the sum of all retained amounts for each line
item plus "Balance To Fund" for that line item in the
Disbursement Request is equal to or greater than an amount
equal to (i) the sum shown under the heading "Scheduled
Value Revised" for that line item minus (ii) the sum shown
under the heading "Total Draws" for that line item, all as
set forth in the Disbursement Request.
(c) After notice from Owner that the Maximum Project
Amount is not "in balance", Developer shall:
(i) within ten days after receipt of such notice,
deposit with Owner in the Settlement Account the amount
of each line item shortfall necessary to put the
Maximum Project Amount "in balance"; or
(ii) within ten days after receipt of such notice,
provide Owner with such other assurance of, or security
for, the payment of Project Costs as Owner may in its
sole discretion approve or require. Any cash amounts
which are deposited by Developer to put the Maximum
Project Amount "in balance" shall be the next funds
disbursed by Owner, in accordance with the terms and
conditions of Section 5.3.
5.8 Retainage. Owner shall make Disbursements in the
---------
amount of the Project Costs contained in the Approved Budget to
the extent properly incurred, paid and substantiated by Developer
during the course of construction; provided that Owner shall
withhold ten percent of the first fifty percent (50%) of the hard
construction costs comprising any part of each respective draw as
set forth in the Approved Budget and five percent of the balance
thereof. Said percentages of all hard costs so retained will be
disbursed to Developer upon satisfaction of all conditions to the
Disbursement for the Project set forth in Section 6.4. To the
full extent permitted by applicable Law, Developer hereby waives
any requirement of law of the states of Texas or Alabama that
Owner deposit or maintain in a separate account such sums
retained.
5.9 Developer's Fee. Owner shall disburse the Developer's
---------------
Fee after the completion of the Project, as such completion is
defined in Section 10.1 hereof. Failure of the foregoing
condition shall relieve Owner of the obligation to pay the
Developer's Fee.
5.10 Estimated Completion Amount. To the extent that the
---------------------------
full amount of the Maximum Project Amount has not been disbursed
on or prior to the date of the commencement of the term of the
Facility Lease, Owner and Developer shall make a good faith
estimate of the portion of the undisbursed Maximum Project Amount
necessary or appropriate for the completion of the Project
including punch list items, tenant finishes, the "Lease-Up
Allowance" and the "Marketing Allowance" (as defined below) and
interest on the foregoing sums at the Base Rate (collectively,
the "Estimated Completion Amount"). So long as no Event of
Default has occurred, Owner shall permit withdrawals by Developer
of the Estimated Completion Amount for purposes of paying Project
Costs; provided that each such withdrawal shall be subject to
compliance by Developer with all the terms, conditions and
procedures for Disbursements set forth in this Agreement;
provided, further that the minimum disbursement set forth in
Section 5.2 shall not apply. On the earlier date to occur (the
"Release Date") of (i) a written notice from Developer notifying
Owner of Developer's release of the undisbursed portion of the
Estimated Completion Amount or (ii) the date which is 540 days
after the commencement of the term of the Facility Lease,
Developer and Owner will calculate the total amount of the
Maximum Project Amount that was disbursed hereunder together with
all interest owed to Owner pursuant to Sections 3.2 and 5.11 and
the parties shall revise the rental due under the Facility Lease
accordingly. Owner shall not be obligated to disburse any funds
hereunder after the Release Date.
5.11 Fees Relating to Estimated Completion Amount. Until
--------------------------------------------
the Release Date, the Estimated Completion Amount, less any
estimate for interest, shall bear interest at the Base Rate.
Interest on such amount shall be computed on the basis that each
year contains 360 days by multiplying the amounts disbursed
hereunder by the Base Rate, dividing the product so obtained by
360, and then multiplying the quotient thereof by the actual
number of days elapsed. Such interest shall be payable by
Developer to Owner on the first day of each month. Additionally,
Owner shall provide a credit to Developer equal to the amount of
interest on the balance of the undisbursed Estimated Completion
Amount that Developer would have earned had the same funds been
on deposit in an interest bearing, demand deposit account at
First Commercial Bank, Birmingham, Alabama. To the extent that
all or any portion of the Estimated Completion Amount is included
in the Project Amount (as defined in the Facility Lease) and rent
is paid thereon pursuant to the terms of the Facility Lease, then
no interest on such portion or all of the Estimated Completion
Amount shall be due or payable pursuant to the terms of this
Agreement.
As used herein, the term "Marketing Allowance" shall mean
the sum set forth on the Approved Budget, which sum shall be used
for expenses incurred by Developer in connection with the
marketing of the Project to prospective tenants. As used herein,
the term "Lease-Up Allowance" shall mean the sum set forth on the
Approved Budget, which sum shall be used to assist Developer in
paying rent due Owner under the Facility Lease during the initial
18 months of operation of the Project.
6. CONDITIONS TO DISBURSEMENT.
6.1 First Disbursement. Owner's obligation to make the
------------------
initial Disbursement is subject to the satisfaction by Developer
of the following conditions:
(a) Owner shall have received each of the following in
the form attached hereto as exhibits, or as otherwise
reasonably acceptable to Owner:
(i) the original executed Environmental
Indemnity;
(ii) the original executed Assignment of
Contracts;
(iii) the original executed copy of each of
Architect's Consent and Agreement and the Contractor's
Consent and Agreement;
(iv) a written opinion of Developer's counsel or
counsels covering such material relating to Developer,
the Project and this Agreement (including
enforceability) as Owner reasonably requires;
(v) copies of Developer's organizational
documents, certificates of good standing from the
appropriate state authority, and Certificates of
Authority authorizing the execution, delivery and
performance of the Documents, all certified to be true,
accurate and complete by a Designated Representative;
(vi) the Approved Budget;
(vii) a current survey of the Property
indicating the location of all building lines,
easements (visible, reflected in the public records or
otherwise) and any existing improvements or
encroachments, which survey shall contain no state of
facts objectionable to Owner and shall be accompanied
by a survey certificate acceptable to Owner and Title
Company. The survey shall indicate whether the
Property is located in a "Flood Control Area";
(viii) certificates of insurance for all
policies required pursuant to Section 11 hereof;
(ix) all financial statements of Developer (i)
required by Owner; or (ii) necessary to provide Owner
with true, accurate and complete knowledge of the
financial condition of Developer;
(x) evidence satisfactory to Owner of the
availability of all necessary utilities to the Property
and the zoning of the Property to allow the
construction of the Improvements;
(xi) a Phase I environmental report prepared by a
Person, and in form and substance, satisfactory to
Owner;
(xii) a list of subcontractors employed in
connection with the Project whose agreements call for
payment in excess of $150,000.00. The list shall show
the name, license number, address, contract name and
telephone number of each such subcontractor, a general
statement of the nature of the work to be done, the
labor and materials to be supplied, the names of
materialmen, if known and the approximate dollar value
of labor, work and materials itemized with respect to
each subcontractor and materialman. Owner and its
agents shall have the right (but not the obligation) to
directly contact each subcontractor and materialman to
verify the facts disclosed by any such list;
(xiii) Payment and Performance bonds in such
amounts showing Owner as an obligee, in such form and
issued by such companies as are reasonably acceptable
to Owner; and
(xiv) all other documents reasonably required
by Owner.
(b) Owner shall have received and approved in writing
(a) a soils report for the Property (the "Soils Report");
(b) a full set of the Improvement Plans; (c) evidence that
all necessary or appropriate approvals of Governmental
Agencies required in connection with the construction, use
and operation of the Project have been obtained (except as
provided in Section 6.5(b) and other than a certificate of
occupancy or construction inspections), including without
implied limitation, plot plan approvals, subdivision
approvals, environmental approvals (including an
environmental impact report if required under applicable
law), sewer and water permits and zoning and land use
entitlements; and (d) copies of all Project Agreements.
(c) Developer shall have delivered to Owner the Title
Policy subject only to the Permitted Encumbrances, the cost
of which shall be paid for from the Approved Budget.
(d) Owner shall have received a sworn statement from
an A.I.A. Architect acceptable to Owner giving, in such
detail as Owner may reasonably require, an estimate of the
time and cost of completing the construction of the Project
and stating, with such supporting details as Owner may
reasonably require, that to the best of their knowledge and
belief, and after due inquiry (a) the Approved Budget is an
accurate reflection of all of the Maximum Project Amount,
(b) the amounts to be subsequently advanced for such purpose
under this Agreement will be sufficient to pay all Project
Costs, and (c) the Project can be completed in accordance
with the Improvement Plans within the time period required
hereunder.
(e) Owner shall have received reasonably satisfactory
evidence from Developer, the Architect, or such other
parties as Owner shall in its sole discretion require that
the Improvement Plans are in compliance with all applicable
statutory requirements (if any) regarding the elimination of
architectural barriers for handicapped persons.
(f) Owner shall have approved all Project Agreements,
access rights, easements, and other arrangements necessary,
in the judgement of Owner, for the uninterrupted and orderly
operation of the Project.
(g) At Owner's election, Owner shall have received a
current Appraisal of the completed Project.
(h) Owner shall have received all other evidence and
information that it may reasonably require.
(i) All of the conditions set forth in the Master
Development Agreement shall have been satisfied.
6.2 Any Disbursement. Owner's obligation to make any
----------------
Disbursement (including the initial Disbursement and the final
Disbursement) is subject to the following conditions precedent,
except for item (g) which shall only be a condition precedent to
any Disbursement after the completion of the foundation:
(a) Owner and Owner's Engineer (for Disbursement
Requests which include hard costs) shall have received a
Disbursement Request and, for Disbursement Requests which
include hard costs, a completed and executed Application and
Certificate for Payment (AIA document G702), each executed
by a Designated Representative and Architect where
appropriate), together with such other documents required or
requested by Owner under Section 5.2(a).
(b) Neither all nor any portion of the Property shall
be the subject of any proceeding by a Governmental Agency
for the condemnation, seizure or appropriation thereof, nor
the subject of any negotiations for sale in lieu of
condemnation, seizure or appropriation, unless the portion
of the Property subject to any such proceeding or
negotiation, if taken, shall not render the remaining
portion of the Property unsuitable for its primary intended
use.
(c) Neither the Improvements nor the Project shall
have been rendered unsuitable for its primary intended use
by fire or other casualty, unless insured.
(d) The representations and warranties set forth in
Section 7 hereof and in the Master Development Agreement
shall be true, accurate and correct as of the date of each
Disbursement as though made as of that date, and Developer
shall have performed all of its covenants and obligations
hereunder to have been performed as of the date of such
Disbursement.
(e) No Event of Default which is continuing or not
otherwise cured or waived, shall have occurred and no event
shall have occurred which, with the giving of notice or the
passage of time or both, would constitute an Event of
Default.
(f) Owner shall have received from the Title Company,
in form and substance satisfactory to Owner, all
endorsements required as part of the Title Policy, and any
binders, supplements and modifications thereto as Owner
deems reasonably necessary to evidence that there are no
intervening liens or security interests against the Property
or the Project, the cost of which shall be paid for from the
Approved Budget.
(g) Within 30 days after pouring of the concrete slab
on the Project and upon completion of the foundation of the
Project, Developer shall have delivered (i) a survey
prepared by a duly licensed surveyor containing such
certificate as Owner may reasonably require, showing that
the location of the foundation is entirely within the
property lines and set-back lines and does not encroach upon
any easement or breach or violate any covenant, condition or
restriction of record, nor any applicable building or zoning
ordinance and (ii) a certificate prepared by a duly licensed
surveyor or architect in such form as Owner may reasonably
require, stating that the property was graded, the
foundation poured and the site work completed in compliance
with the requirements of the Soils Report, together with
such concrete and compaction test reports as Owner's
Engineer shall reasonably request.
(h) Developer shall have executed and acknowledged (or
caused to be executed and acknowledged) and delivered to
Owner all documents, and taken all actions required by Owner
from time to time to confirm the rights created or now or
hereafter intended to be created under the Documents, to
protect and further the validity, priority and
enforceability of the Documents, or otherwise to carry out
the purposes of the Documents and the transactions
contemplated thereunder.
(i) Owner shall be reasonably satisfied, based on its
own inspections or other reliable information, that the
progress of the Project, and its compliance with all
applicable laws and other requirements, is as represented to
Owner by Developer. For such purposes Owner may require
evidence of successful completion of any required
inspections of city and county officials or those of other
Governmental Agencies which may be required with respect to
different stages in the completion of the Improvements,
together with certificates of the Architect and/or
Contractor that the Project is progressing as represented by
Developer.
(j) Owner shall be satisfied that Developer has
complied with all applicable Laws, regulations and recorded
covenants, conditions and restrictions so as to permit the
lawful construction of the Project and that all required
governmental approvals and permits have been obtained by
Developer.
(k) Developer shall not be in default under the terms
and provisions of any Project Agreement, the Facility Lease
or the Master Development Agreement.
(l) All conditions to the initial Disbursement shall
have been satisfied.
(m) Notwithstanding anything contained herein to the
contrary, no Disbursements shall be made until Developer
shall have delivered to Owner a fully executed final
building permit for the Project from all appropriate
Governmental Agencies.
(n) There shall be no actions, suits or proceedings
pending, or to Developer's knowledge, threatened against or
affecting Developer or the Project, at law or in equity, or
before any governmental agency, which, if adversely
determined, would substantially impair the ability of
Developer to complete the Project in accordance with the
provisions hereof.
(o) All of the conditions set forth in the Master
Development Agreement shall have been satisfied.
6.3 Disbursement of Marketing and Lease-Up Allowances. The
-------------------------------------------------
"Marketing Allowance" on the Approved Budget shall be disbursed
to Developer in three equal monthly installments beginning with
the Disbursement made during the ninth month after the date
hereof. The "Lease-Up Allowance" on the Approved Budget shall be
included within the Estimated Completion Amount pursuant to
Section 5.10.
6.4 Contractor's Disbursement. Owner's obligation to
-------------------------
disburse the retainage under the construction contract is subject
to the following additional conditions precedent:
(a) Owner shall have received all of the title
insurance and related documents described in Section 6.2(f)
hereof.
(b) Owner shall, in its sole discretion, be satisfied
that the Architect, Surveyor and all contractors and
subcontractors have been paid and will be paid in full, or
have otherwise executed sufficient and satisfactory releases
of any and all mechanic's or materialman's lien or liens
which they may have or be entitled to, or that Developer has
otherwise sufficiently provided for the satisfaction of all
claims or liens by the Architect, Surveyor or any contractor
or subcontractor.
(c) Developer shall have furnished to Owner an "as
built" ALTA survey, certified to ALTA requirements, prepared
by an engineer or surveyor licensed in the State of Texas
acceptable to Owner, the cost of which shall be paid for
from the Approved Budget and shall:
(i) include a legal description of the land by
metes and bounds,and a computation of the area
comprising the Land in both acre, gross square feet and
net square feet measured in accordance with the
Building Owners and Managers Association Standard for
Measurement of Office Space (ANSI Standard 265.1-1980);
(ii) accurately show the location on the Property
of the Improvements, buildings and setback lines,
ditches, easements, roads, rights-of-way and
encroachments;
(iii) be certified to the Owner and the Title
Company;
(iv) legibly identify any and all recorded matters
shown on said survey by appropriate volume and page
recording references with dates of recording noted and
the survey shall show the location of all adjoining
streets.
6.5 Final Disbursement. Owner's obligation to disburse the
------------------
final balance of the Maximum Project Amount is subject to the
following additional conditions precedent:
(a) The Project shall be complete, as such completion
is defined in Section 10.1 hereof.
(b) Any portion of the Project requiring inspection or
certification by any Governmental Agency shall have been
inspected and certified as complete and all other necessary
approvals shall have been duly issued. (This subsection
shall not apply to Chapter 247 of the Texas Health and
Safety Code if at such time Developer does not provide
personal care services to the tenants at the Property).
(c) Owner, Contractor, Architect, Owner's Engineer and
Developer shall each have approved the completion of the
Project.
(d) Developer shall have filed a notice of completion
as required by the Laws, if any.
6.6 Disbursement of Developer's Fee. Notwithstanding
-------------------------------
anything to the contrary contained herein, Owner's obligation to
disburse the Developer's Fee is subject to and shall not occur
before the Project shall be complete, as such completion is
defined in Section 10.1 hereof.
7. REPRESENTATIONS AND WARRANTIES. As a material inducement to
Owner's entry into this Agreement, Developer represents and
warrants to Owner that:
7.1 Formation, Qualification and Compliance. Developer (a)
---------------------------------------
is either a corporation, limited partnership or limited liability
company duly formed, validly existing, and in good standing under
the laws of the States of Delaware or Texas; (b) has all
requisite authority to conduct its business and own and lease its
properties; and (c) is qualified and in good standing in every
jurisdiction in which the nature of its business makes
qualification necessary or where failure to qualify could have a
material adverse affect on its financial condition or the
performance of its obligations under the Documents. Developer is
in material compliance in all respects with all Laws and
requirements applicable to its business, the violation of which
might materially affect its obligations hereunder, and has
obtained all approvals, licenses, exemptions and other
authorizations from, and has accomplished all filings,
registrations and qualifications with, any Governmental Agency
that are necessary for the transaction of is business.
7.2 Execution and Performance of Documents. Developer
--------------------------------------
hereby represents and warrants to Owner as follows:
(a) Developer has all requisite power and authority to
execute and perform its respective obligations under the
Documents.
(b) The execution by Developer and the performance by
Developer of its obligations under each Documents have been
authorized by all necessary action and do not and will not:
(i) require any consent or approval not
heretofore obtained of any Person having any interest
in Developer;
(ii) violate any provision of, or require any
consent or approval not heretofore obtained under, the
partnership agreement, articles of incorporation,
bylaws or other governing documents applicable to
Developer;
(iii) result in or require the creation or
imposition of any lien, claim, charge or other right of
others of any kind (other than under the Documents) on
or with respect to any property or assets owned or
leased by Developer;
(iv) violate any provision of any law, order,
writ, judgment, injunction, decree, determination or
award presently in effect; or
(v) conflict with or constitute a breach or
default under, or permit the acceleration of
obligations owed pursuant to, any contract, loan
agreement, lease or other document to which Developer
is a party or by which Developer or any of its property
is bound.
(c) Developer, to the best of its knowledge, is not in
default in any respect under any law, regulation, order,
writ, judgment, injunction, decree, determination, award,
contract, or lease.
(d) No approval, license, exemption or other
authorization from, or filing, registration or qualification
with, any Governmental Agency is required in connection
with:
(i) the execution by Developer of, and the
performance by Developer of its obligations under the
Documents, other than customary building, drainage and
construction permits which will be secured by Developer
prior to undertaking those activities; and
(ii) the Documents.
(e) The Documents, when executed and delivered, will
constitute legal, valid and binding obligations of Developer
enforceable in accordance with their respective terms.
(f) The officers of Developer are properly in office
and fully authorized to execute the Documents.
(g) No event of Default which is continuing or not
otherwise cured or waived, shall have occurred and no event
shall have occurred which, with the giving of notice, the
passage of time, or both, would constitute an Event of
Default.
7.3 Financial and Other Information. All financial
-------------------------------
information furnished to Owner with respect to Developer in
connection with the Project (a) is complete and correct in all
respects as of the date of delivery thereof; (b) accurately
presents the financial condition of Developer as of the date of
delivery thereof; and (c) has been prepared in accordance with
generally accepted accounting principles consistently applied.
All other documents and information furnished to Owner by
Developer with respect to Developer in connection with the
Project are complete, accurate and correct in all material
respects. Developer does not have any material liability or
material contingent liability which has not been disclosed to
Owner in writing and there is no material lien, claim, charge or
other right of others of any kind (including liens or retained
security titles of conditional vendors) on any property of
Developer not disclosed in such financial statements.
7.4 No Material Adverse Change. There has been no material
--------------------------
adverse change in the condition, financial or otherwise, of
Developer since the date of the most recent financial statements
delivered to Owner. Since that date, Developer has not entered
into any material transaction not disclosed in such financial
statements or otherwise disclosed to Owner in writing.
7.5 Tax Liability. Developer has filed all required
-------------
federal, state and local tax returns. Developer has paid all
federal, state and local taxes due (including any interest and
penalties) other than taxes being promptly and actively contested
by Developer in good faith and by appropriate proceedings and
which have been disclosed to Owner in writing. Developer is
maintaining adequate reserves for tax liabilities (including
contested liabilities) in accordance with generally accepted
accounting principles.
7.6 Government Requirements. Developer has reviewed and is
-----------------------
in compliance with all Laws relating to the Property. Developer
has obtained, and is complying with the conditions of, all
licenses, exemptions, approvals and other authorizations of
Governmental Agencies required in connection with the Property
and the Project, including each of the following as applicable:
(a) zoning, land use and planning requirements,
including requirements arising from, or relating to the
adoption or amendment of, any applicable general plan;
(b) subdivision and parcel map requirements;
(c) environmental requirements, including requirements
of the National Environmental Policy Act and the preparation
and approval of all required environmental impact statements
and reports;
(d) requirements in connection with use, occupancy and
building permits; and
(e) requirements of public utilities.
7.7 No Adverse Conditions. There are no existing, pending
---------------------
or, to the best of Developer's knowledge, threatened Force
Majeure Events or other natural, legal, or economic conditions
which could prevent completion of the Project in accordance with
the Improvement Plans.
7.8 Rights of Others. Developer has examined and, to the
----------------
best of Developer's knowledge, is in compliance with all
covenants, conditions, restrictions, easements, rights of way and
other rights of third parties relating to the Property.
7.9 Approved Budget. The Approved Budget is based on
---------------
information deemed reliable by Developer and represents
Developer's good faith estimate of all costs required to complete
the Project.
7.10 Litigation. There are no actions or proceedings
----------
pending, or, to the best of Developer's knowledge, threatened
against or affecting Developer or the Project before any
Governmental Agency.
7.11 Project Agreements. Developer has delivered to Owner
------------------
true and complete copies of all Project Agreements, together with
all supplements and modifications thereto.
7.12 Title to Assets. Developer has good and marketable
---------------
title to all assets disclosed in the financial statements
furnished to Owner except as otherwise shown therein.
7.13 Name and Principal Place of Business. Developer
------------------------------------
presently uses no trade name other than its actual name.
Developer shall, however, operate the Project under the trade
name "Grand Court ____________________." Developer's principal
place of business is ____________________ County,
____________________.
7.14 Hazardous Materials. Developer has no knowledge as a
-------------------
result of the Phase I environmental report or otherwise of (a)
the presence of any Hazardous Materials on the property; (b) the
presence of any underground storage tanks ("USTs") on the
Property; or (c) any spills, releases, discharges or disposal of
Hazardous Materials that have occurred or are presently occurring
off the Property as a result of any construction on or operation
and use of the Property. In connection with the construction on
or operation and use of the Property, Developer represents for
itself, its contractors, subcontractors and any other of its
agents, that, as of the date of this Agreement, it has no
knowledge, after due investigation, of any failure to comply with
all applicable local, state and federal environmental laws,
regulations, ordinances and administrative and judicial orders
relating to the generation, recycling, reuse, sale, storage,
handling, transport and disposal of any Hazardous Materials.
Developer represents and warrants to Owner that it has caused to
be prepared a Phase I environmental report investigating the
present and past uses of the Property and its environmental
engineers have made due inquiry of the appropriate governmental
agencies and offices having jurisdiction over the Property and
the laws regulating the environment, as to whether the Property
or any property in the immediate vicinity of the Property is or
has been the site of storage of or contamination by any Hazardous
Materials. Developer has provided Owner with a copy of the Phase
I environmental report. Activities that are included in the use
of the Property as an assisted and independent living facility,
and such other necessary and incidental uses in connection
therewith are excepted from this Section.
8. AFFIRMATIVE COVENANTS. While any obligation of Developer
under the Documents remains outstanding:
8.1 Payment of Taxes, Assessments Costs and Expenses.
------------------------------------------------
Developer shall pay or cause to be paid out of the Approved
Budget all costs and expenses required to satisfy the conditions
of this Agreement. Without limitation of the generality of the
foregoing, Developer shall pay or cause to be paid or discharged
out of the Approved Budget, when due, all taxes, assessments and
other governmental charges upon the Property or Improvements, as
well as all claims for work, services, labor and materials which,
if unpaid, might become a lien or charge upon the Property or
Improvements. Developer shall pay or caused to be paid out of
the Approved Budget all costs and expenses of Owner and Developer
in connection with the Project, including, but not limited to,
all expenses of hazard and liability insurance premiums,
reasonable fees for the examination of the status of title,
preparation and review of Documents, title insurance premiums and
closing and servicing fees, surveys, architect and engineer fees,
and other costs and expenses required by this Agreement or the
Master Development Agreement, including, but not limited to,
recording and filing fees and all mortgage taxes and intangible
taxes, costs of Title Company disbursements, if any, as well as
all costs related to this Agreement, any reasonable fees and
costs of outside and/or special counsel and fees and commissions
due to brokers in connection with this transaction. In the event
of default by Developer under this Agreement, Developer agrees to
pay all reasonable expenses incurred by Owner, including
reasonable attorneys' fees, in accordance with terms and
provisions of this Agreement. In connection with the foregoing
covenant, Owner and Developer represent to one another that they
have no agreement with any broker or other person for any
commission arising out of or in connection with the transaction
contemplated by this Agreement.
8.2 Title Insurance Endorsement. Developer shall deliver
---------------------------
to Owner in form and content satisfactory to Owner, all
endorsements and binders to the Title Policy required by Owner
hereunder from time to time, the cost of which shall be paid for
from the Approved Budget.
8.3 Continued Compliance. Comply with all Laws and
--------------------
requirements of Governmental Agencies, and all rights of third
parties, relating to the Property or Developer's business or
other properties, all as described more fully in Section 7.6. and
deliver to Owner from time to time, within ten days of Owner's
request therefor, evidence reasonably satisfactory to Owner that
Developer has complied with any such law, requirement or right.
8.4 Books and Records. Maintain complete books of account
-----------------
and other records reflecting its operations with respect to the
Property, including all contributions of equity investment
capital, in accordance with generally accepted accounting
principles consistently applied, and permit Owner and its agents,
at reasonable times, to inspect and copy any such records.
8.5 Maintenance and Security of the Property. Maintain the
----------------------------------------
Property in good condition and repair, take all measures
reasonably required by Owner to protect the physical security of
the Property, and not permit any waste or damage with respect to
the Property.
8.6 Financial Statements. Deliver to Owner, or cause to be
--------------------
delivered:
(a) As soon as available and in any event within 90
days after the end of each Fiscal Year, a statement of
Developer's financial position as of the end of such Fiscal
Year and the related statements of revenues and expenses for
such Fiscal Year, setting forth in each case in comparative
form the figures for the previous Fiscal Year all reported
on by any accounting firm reasonably acceptable to Owner,
whose report shall state that such financial statements
present fairly the financial position of Developer as of the
end of such Fiscal Year and the results of its operations
and changes in financial position for such Fiscal Year.
(b) As soon as available and in any event within 45
days after the end of each of the first three quarterly
periods of each Fiscal Year, a statement of Developer's
financial position as of the end of such period and the
related statements of revenues and expenses for such quarter
of the Fiscal Year, setting forth in comparative form the
figures for the previous Fiscal Year, which statements may
be internal statements and need not be audited.
8.7 Notice of Certain Matters. Give notice to Owner of any
-------------------------
one or more of the following with respect to which Developer may
have knowledge:
(a) any litigation or claim of any kind demanding
injunctive relief or affecting or relating to the Property
and involving an amount in excess of $20,000.00 and any
litigation or claim of any kind that might otherwise subject
Developer to liability in excess of $1,000,000.00, whether
covered by insurance or not;
(b) any dispute between Developer and any Governmental
Agency relating to the Property, the adverse determination
of which might materially affect the Property;
(c) any commencement of proceedings in condemnation or
eminent domain relating to the Property;
(d) any trade name hereafter used by Developer;
(e) any material aspect of the Project that is not in
conformity with the Improvement Plans;
(f) any circumstance that may render the Approved
Budget materially inaccurate with respect to any estimated
Project Cost;
(g) any Event of Default or event which, with the
giving of notice or the passage of time or both, would
constitute an Event of Default; and
(h) any other event or condition causing a material
adverse change in the financial condition of Developer.
8.8 Notice of Liens. Give notice to Owner of the creation
---------------
of any lien on any portion of the Property or the Personal
Property within five Business Days after Developer receives
notice of its creation.
8.9 Additional Reports and Information. Deliver to Owner,
----------------------------------
within ten Business Days of Owner's request therefor, (a) copies
of all regular or periodic financial statements and reports that
Developer sends to any partners or investors; (b) copies of
regular or periodic reports which are available for public
inspection or which Developer is required to file with any
Governmental Agency; and (c) in form and substance reasonably
satisfactory to Owner (i) a certificate stating that no Event of
Default remains uncured or setting forth all existing Events of
Default in reasonable detail and (ii) all other information
relating to Developer, the Property or the Project reasonably
required by Owner from time to time.
8.10 Further Assurances. Execute and acknowledge (or cause
------------------
to be executed and acknowledged) and deliver to Owner all
documents, and take all actions, reasonably required by Owner
from time to time to confirm the rights created or now or
hereafter intended to be created under the Documents, to protect
and further the validity, priority and enforceability of the
Documents, or otherwise to carry out the purposes of the
Documents and the transactions contemplated thereunder.
8.11 Copies of Amendments. Promptly deliver to Owner a copy
--------------------
of any Change Orders required pursuant to Section 10.3 and copies
of any supplement, modification or amendment to any document
delivered to Owner pursuant to this Agreement.
8.12 Continued Existence. Maintain its existence and
-------------------
continue to be in good standing in the States of Delaware and
Texas, as applicable.
8.13 Hazardous Materials. In the event any investigation or
-------------------
monitoring of site conditions or any cleanup, containment,
restoration, removal or other remedial work ("Remedial Work") is
required (a) under any applicable federal, state or local law or
regulation, (b) by any judicial or administrative order, (c) in
order to comply with any agreements affecting the Property, (d)
to maintain the Property in a standard of environmental condition
which prevents the release of any Hazardous Materials to adjacent
property and otherwise is consistent with the prudent ownership
of property of the character of the Property, (e) as a result of
the existence of Hazardous Materials on the Property, or (f) as a
result of any activities on the Property which directly or
indirectly result in the Property becoming contaminated with
Hazardous Materials, Developer shall perform or cause to be
performed such Remedial Work; provided that, Developer may
withhold commencement of such Remedial Work pending resolution of
any good faith contest regarding the application, interpretation
or validity of any law, regulation, order or agreement, subject
to the requirements set forth below. All Remedial Work shall be
conducted (i) in a diligent and timely fashion by a licensed
environmental engineer, (ii) pursuant to a detailed written plan
for the Remedial Work approved by any Governmental Agency with a
legal or contractual right to grant such approval, (iii) with
such insurance coverage pertaining to liabilities arising out of
the Remedial Work as is then customarily maintained with respect
to such activities, and (iv) only following receipt of all
required permits, licenses or approvals. In addition, Developer
shall submit to the Owner promptly upon receipt or preparation,
copies of any and all reports, studies, analysis, correspondence,
governmental comments or approvals, proposed removal or other
Remedial Work contracts and similar information prepared or
received by Developer in connection with any Remedial Work or
Hazardous Materials relating to the property. All costs and
expenses of such Remedial Work shall be paid by Developer (unless
it is a Project Cost specifically set forth in the Approved
Budget), including, without limitation, the charges of the
Remedial Work contractors and the consulting environmental
engineer, any taxes or penalties assessed in connection with the
Remedial Work and the Owner's reasonable fees and costs incurred
in connection with monitoring or reviewing such Remedial Work.
In the event Developer should fail to commence or cause to be
commenced such Remedial Work, in a timely fashion, or fail
diligently to prosecute to completion such Remedial Work, the
Owner (following ten days written notice to Developer) may, but
shall not be required to, cause such Remedial Work to be
performed. All such costs shall be due and payable by Developer
ten days after the Owner's demand therefor. Notwithstanding any
provision of this Agreement to the contrary, Developer may
contest by appropriate action any Remedial Work requirement
imposed by any Governmental Agency, and the Owner shall have no
right to perform such required Remedial Work on Developer's
behalf during the pendency of such contest, provided that (a) no
Event of Default has occurred and is continuing, (b) Developer
has given the Owner written notice that Developer is contesting
or shall contest, and Developer does in fact contest, the
application, interpretation or validity of the law, regulation,
order or agreement pertaining to the Remedial Work by appropriate
legal or administrative proceedings conducted in good faith and
with due diligence and dispatch, (c) such contest shall not
subject the Owner, any of the Owner's directors, trustees,
beneficiaries, officers, shareholders, employees and agents, or
any assignee of all or any portion of the Owner's interest in the
Property to civil or criminal liability and does not jeopardize
any such parties' lien upon or interest in the property, and (d)
Developer shall give such security or assurances as may be
reasonably required by the Owner to insure ultimate compliance
with all legal or contractual requirements pertaining to the
Remedial Work (and payment of all costs, expenses, interest and
penalties in connection therewith) and to prevent any sale,
forfeiture or loss by reason of nonpayment or noncompliance.
Developer agrees to immediately notify Owner if Developer becomes
aware of (a) any Hazardous Materials or other environmental
problem or liability with respect to the Property, or any
adjacent property or (b) any lien, action or notice relating to
Hazardous Materials and served on Developer or imposed against
the Property, as the case may be, by any Governmental Agency.
Developer agrees to protect, defend, indemnify and hold Owner
harmless from and against all claims, demands, damages, losses,
liens, liabilities, penalties, fines, lawsuits and other
proceedings (including, without limitation, the cost of any
required cleanup of such Hazardous Materials and all reasonable
attorneys' fees and expenses incurred by Owner in connection
therewith) arising directly or indirectly from or out of, or in
any way connected with (a) the inaccuracy of the representations
set forth in Section 7.14 and (b) any activities on the Property
which directly or indirectly results in the Property or any
adjacent and contiguous property becoming contaminated with
Hazardous Materials, (c) the discovery of Hazardous Materials on
the Property, and (d) the cleanup of Hazardous Materials from the
Property. Developer acknowledges that it will be solely
responsible for all costs and expenses relating to the cleanup of
Hazardous Materials from the Property or from any other
properties which become contaminated with Hazardous Material as a
result of activities on or the contamination of the Property.
Developer's obligations under this Section 8.13 shall survive the
completion of the Project as contemplated by this Agreement.
8.14 Building Permit. Secure a final building permit for
---------------
the Project from all applicable Governmental Agencies on or
before ________________________ ___, 1996.
8.15 Consolidated Net Worth. Developer shall maintain, on a
----------------------
consolidated basis, a Consolidated Net Worth of at least
$30,000,000.00, as reflected from time to time in the financial
statements provided to Owner pursuant to Section 8.6; provided,
however, if Developer shall complete an initial public offering
of equity securities, then the Consolidated Net Worth which
Developer shall maintain shall be at least 75% of its
Consolidated Net Worth that existed immediately after the
completion of the initial public offering, but not less than
$30,000,000.00.
8.16 Name of Facility. Developer may select the name of the
----------------
Project, which name will at all times be the exclusive property
of Developer.
9. NEGATIVE COVENANTS. While any obligations of Developer to
Owner remain outstanding, Developer shall not, unless Owner
otherwise consents in writing:
9.1 Liens on Property. Cause or suffer to become effective
-----------------
any lien, restriction or other encumbrance upon the title
affecting any part of the Property other than (i) the Permitted
Encumbrances, (ii) taxes not delinquent, and (iii) easements
permitted under Section 14.6.
9.2 Liens on Personal Property. Except for motor vehicles,
--------------------------
or kitchen equipment (limited to dishwashers and ice machines) or
office equipment that is obtained under one or more leases,
install in, or use in connection with, the Property any personal
property (other than the Personal Property) which any Person
other than Owner has the right to remove or repossess under any
circumstances, or on which any Person other than Owner has a
lien.
9.3 Changes in Approved Budget. Supplement, modify or
--------------------------
amend the Approved Budget, unless such supplement, modification
or amendment results from a Change Order for which Owner's prior
written approval is not required.
9.4 Assignments of Obligations. Assign or delegate any
--------------------------
obligation or rights under the Documents.
9.5 Removal of Personal Property. Remove or permit the
----------------------------
removal from the Property of any items of Personal Property
(other than tools and construction equipment used in the
construction of the Project) unless (i) no Event of Default (or
event which, with the giving of notice or the passage of time or
both, would constitute an Event of Default) has occurred and is
continuing and (ii) if the same was either paid for with funds
from Owner or was a substitution for an item paid for with funds
from Owner, Developer promptly either (a) substitutes and
installs on the Property other items of equal or greater value in
the operation of the Property as a modern facility, all of which
items shall be free of liens, and executes and delivers to Owner
all documents required by Owner in connection with such items, or
(b) (1) in the case of the sale or scrapping of any items, pays
to Owner the sale proceeds or scrap value, as applicable (2) in
the case of the trade-in of any items for other items of Personal
Property not installed on the Property, pays to Owner the amount
of the credit received and (3) in the case of any other
disposition, pays to Owner an amount equal to the original cost
of the items less depreciation at rates calculated in accordance
with generally accepted accounting principles.
10. CONSTRUCTION COVENANTS.
10.1 Commencement and Completion of Project. Developer
--------------------------------------
shall commence construction of the Project within 30 days of the
date hereof (assuming that all the conditions in Section 6.1 have
been satisfied), diligently proceed with the construction of the
Project and substantially complete the construction of the
Project within 15 months of the commencement of construction for
an aggregate amount not to exceed the Maximum Project Amount
unless Developer brings the costs "in balance" as provided in
Section 5.7. The Project shall be considered complete for
purposes of this Agreement only when: (a) all work described in
the Improvement Plans has been completed and fully paid for or
will be paid for with the final Disbursement to be made
hereunder, (b) all work requiring inspection or certification by
any Governmental Agency has been completed and all requisite
certificates, approvals and other necessary authorizations
(including any required certificates of occupancy) have been
obtained, (c) streets, if any, and offsite utilities have been
completed to the satisfaction of all applicable authorities, (d)
sufficient undisbursed amounts of the Maximum Project Amount
remain available to pay any and all budgeted amounts for post-
completion cost (including amounts budgeted for tenant
improvements and any post-Developer's Fees or other amounts due
under this Agreement), and (e) Owner has received a Completion
Certificate from the Architect in the form attached hereto as
Exhibit D.
---------
10.2 Offsite Improvements. Developer shall promptly
--------------------
commence and substantially complete all offsite improvements of
the public streets, walks and like areas adjoining the Project as
well as any requirement to provide utilities and other facilities
in accordance with requirements of any Governmental Agencies.
Developer hereby indemnifies and holds Owner harmless against any
claim of any surety furnishing a bond for such work to any
Governmental Agency, whether such claim is founded upon existing
or future liability and whether such liability is express or
implied.
10.3 Change Orders. The Improvement Plans shall not be
-------------
modified except pursuant to change orders ("Change Orders")
approved by Owner pursuant to this Section 10.3. All Change
Orders shall be submitted to Owner for Owner's approval before
Developer becomes committed thereto if (i) the change materially
affects structural aspects of the Improvements or (ii) if such
Change Order involves an amount in excess of $50,000.00. If
acceptable to Owner, a properly submitted Change Order will be
approved in writing by Owner within ten Business Days of its
receipt; provided that in the event Owner reasonably determines
(and notifies Developer within such ten Business Day period) that
Owner needs to study, or consult with construction or other
experts in connection with the impact of such Change Order, such
ten Business Day approval period shall be extended for an
additional five Business Days, provided Owner has received all
necessary information in order to make such decision, or five
Business Days beyond the date Owner receives such information,
whichever is later.
10.4 Conformity with Improvement Plans. Developer shall
---------------------------------
cause the Project to be constructed in substantial conformity
with the Improvement Plans. If any aspect of the Project is not
in substantial conformity with the Improvement Plans, Owner shall
have the right to stop the work and order repair or
reconstruction in accordance with the Improvement Plans and to
withhold further Disbursements until the Project is in
substantial conformity with the Improvement Plans. Upon notice
from Owner to Developer (or Developer's discovery irrespective of
such notice) that any aspect of the Project is not in substantial
conformity with the Improvement Plans, Developer shall commence
correcting the deviation promptly, and in any event within ten
Business Days of the notice or discovery, and shall prosecute
such work diligently to completion, which, absent causes beyond
Developer's control, shall not be later than 45 days after such
notice or discovery. If Owner determines that the corrective
work is not proceeding satisfactorily, Owner may take over such
corrective work and complete it at Developer's expense from the
Approved Budget.
10.5 Owner's Engineer. Developer hereby acknowledges and
----------------
agrees that Owner has employed, and shall continue to employ the
Owner's Engineer, all costs of which (not to exceed $1,000.00 per
month), shall be paid by Developer out of the Approved Budget, to
assist Owner in connection with Owner's review and approval of
all plans, specifications, contracts, budgets and related
matters, and to regularly inspect the progress of the Project and
approve all Disbursement Requests.
10.6 Encroachments. The Project shall be constructed
-------------
entirely on the Property and shall not encroach upon or overhang
any easement, right of way, building set-back line, or land of
others unless, in connection with any such encroachment,
Developer (a) records a document, signed by all property owners,
easement holders and other Persons whose rights are affected by
the encroachment or overhang, consenting to the encroachment or
overhang, and sufficient to ensure that Owner's rights with
respect to the Property could not be impaired by the encroachment
or overhang and (b) furnishes to Owner all other documents,
including any title insurance endorsements, reasonably required
by Owner. From time to time upon demand, Developer shall furnish
satisfactory evidence of compliance with this Section 10.6.
10.7 Entry and Inspection. At all reasonable times prior to
--------------------
completion of the Project, Owner and its agents shall have (a)
the right of free access to the Property and all sites away from
the Property where materials for the Project are stored, (b) the
right to inspect all labor performed and materials furnished for
the Project, and (c) the right to inspect and copy all documents
pertaining to the Project. Without limiting the generality of
the foregoing, the Owner may cause the Owner's Engineer to
inspect the Project at least once each calendar month in
connection with Developer's request for a Disbursement.
10.8 Construction Information. Developer shall furnish to
------------------------
Owner, within ten days after the end of each calendar month prior
to completion of the Project, a report in form and content
satisfactory to Owner, certified as correct by Contractor and
Developer, setting forth all Project Costs accrued as of the end
of that month, all Project Costs projected as of the end of that
month, and all changes from the previous such report which are
known or reasonably anticipated by Developer or Contractor. From
time to time during the course of construction, if requested by
Owner and within ten days after receipt of such request,
Developer shall furnish Owner with reports of Project Costs,
construction progress schedules and contractor's cost breakdowns
for the Project, itemized as to trade description and item,
showing the name of the contractor(s) and/or subcontractor(s),
and including indirect costs such as real estate taxes, legal and
accounting fees, insurance, architects' and engineers' fees, the
fees or other amounts due under this Agreement and contractor's
overhead.
10.9 Permits and Warranties. Promptly upon receipt of the
----------------------
same by Developer, Developer shall furnish Owner with true and
complete copies of (a) all licenses, permits, approvals,
exemptions and other authorizations required in connection with
the Project and (b) all warranties and guaranties received from
any Person furnishing labor, materials, equipment, fixtures or
furnishings in connection with the Project.
10.10 Protection Against Liens.
------------------------
(a) Developer shall pay and discharge all claims for
labor, materials and services furnished in connection with
the Project that are outside of the Approved Budget and take
all actions required to prevent the assertion of claims of
lien against the Property.
(b) Upon demand by Owner, Developer shall make all
demands and claims that Owner shall specify upon laborers,
materialmen and other Persons who have furnished (or claim
to have furnished) labor, services or materials in
connection with the Project. Nothing contained herein shall
obligate Developer to pay any claim so long as such claim is
being promptly and actively contested by Developer in good
faith and by appropriate proceedings; provided that
Developer shall, within 30 days after receipt of the notice
of the filing of any claim of lien, provide Owner with other
security or assurances that Owner may reasonably require.
(c) In the event that any lien, stop notice or claim
is asserted against Owner by any Person furnishing labor,
services, equipment or materials to the Project, Developer
shall, upon demand by Owner, take such action as Owner may
reasonably require to release Owner from any obligation or
liability with respect to such lien, stop notice or claim,
including (i) if the claim is being contested in good faith
by appropriate proceedings, obtaining a bond or other
security, in form, substance and amount satisfactory to
Owner or (ii) payment of such claim. If Developer fails to
take such action, Owner may, in its sole discretion, file an
interpleader action requiring all claimants to interplead
and litigate their respective claims, and in any such action
Owner shall be released and discharged from all obligations
with respect to any funds deposited in court.
10.11 Permitted Contests. Notwithstanding any provision
------------------
of this Agreement to the contrary, Developer may contest by
appropriate action any Imposition, and Owner shall have no right
to pay such Imposition on Developer's behalf during the pendency
of such contest, provided that (a) no "Event of Default" has
occurred and is continuing under this Agreement or any of the
other Documents; (b) Developer has given Owner written notice
that Developer is contesting the application, interpretation or
validity of the law, regulation, order or agreement pertaining to
the Imposition by appropriate legal or administrative proceedings
conducted in good faith and with due diligence and dispatch; (c)
such contest shall not subject Owner or any of the Owner's
affiliates or any assignee of all or any portion of the Owner's
interest in any of the Projects to civil or criminal liability
and does not jeopardize any such party's interest in the such
Project; and (d) Developer shall give such security or assurances
as may be reasonably required by Owner to ensure ultimate
compliance with all legal or contractual requirements pertaining
to the Imposition (and payment of all costs, expenses, interest
and penalties in connection therewith ) and to prevent any sale,
forfeiture or loss by reason of nonpayment or noncompliance.
11. INSURANCE.
11.1 Policies Required. While any obligation of Developer
-----------------
under any Document remains outstanding, Developer shall procure
out of the Approved Budget and maintain, or shall cause to be
procured and maintained, continuously in effect policies of
insurance in form and amounts and issued by companies,
associations or organizations satisfactory to Owner covering such
casualties, risk, perils, liabilities and other hazards
reasonably required by Owner. All original policies, or
certificates thereof, and endorsements and renewals thereof shall
be delivered to and retained by Owner unless Owner waives this
requirement in writing. All policies shall expressly protect or
recognize Owner's interest as required by Owner. Without
limiting the generality of the foregoing, Developer shall provide
or cause to be provided the following types of insurance
coverage:
(a) During construction of the Project or any
subsequent renovation of the Improvements: (i) Builder's
Risk Insurance on an "all risks" basis, including Stored
Materials and materials while in transit, naming Owner as
loss payee in the loss payable clause, (ii) Broad Form
Public Liability Insurance in a minimum amount of
$5,000,000.00 per occurrence in respect of bodily injury and
death and $10,000,000.00 for property damage carried by
Developer and by the Contractor naming Owner as a
certificate holder, (iii) Workers' Compensation and
Employer's Liability Insurance naming Owner as a certificate
holder, (iv) Flood Insurance, unless Developer provides
Owner with a letter from the Surveyor certifying that the
Property is not within a one hundred year flood plain or
zone, and (v) Hurricane Insurance in a minimum amount after
deductible equal to the Maximum Project Amount.
(b) After the Project has been completed and until
satisfaction of all obligations under this Agreement (i)
property insurance on an "all risks" cost basis in an amount
equal to the replacement cost of the physical value of the
Improvements but in no event less than the face amount of
the Maximum Project Amount, naming Owner as an additional
insured and loss payee; (ii) Broad Form Public Liability
Insurance in a minimum amount of $5,000,000.00 naming Owner
as a certificate holder if requested by Owner; (iii)
Worker's Compensation and Employer's Liability Insurance
naming Owner as a certificate holder if requested by Owner;
(iv) Flood Insurance, unless Developer provides Owner with a
letter from Developer's engineer certifying that the
Property is not located within a one hundred year floor
plain or zone; (v) Hurricane Insurance in a minimum amount
after deductible equal to the replacement cost of the
physical value of the Improvements but in no event less than
the Maximum Project Amount; and (vi) Rent loss insurance
against loss of income by reason of any hazard covered under
the Insurance required under this subparagraph (b) in an
amount sufficient to avoid any coinsurance penalty, but in
any event for not less than one year's gross receipts from
all sources of income from the Project.
(c) In the event that Owner shall at any time
reasonably and in good faith believe the limits of the
personal injury, property damage or general public liability
insurance then carried to be insufficient, the parties shall
endeavor to agree on the proper and reasonable limits for
such insurance to be carried and such insurance shall
thereafter be carried with the limits thus agreed on until
further change pursuant to the provisions of this Section.
If the parties shall be unable to agree thereon, the proper
and reasonable limits for such insurance shall be determined
by an impartial third party selected by the parties the
costs of which shall be divided equally between the parties.
Such redeterminations, whether made by the parties or by
arbitration, shall be made no more frequently than every
year.
All policies of insurance shall name Owner as an
additional insured. Developer shall furnish Owner with a
certified copy of an original or a certificate of insurance
for all policies of insurance required by this Section 11.1.
All policies or certificates, as the case may be, of
insurance shall set forth the coverage, the limits of
liability, the name of the carrier, the policy number and
the period of coverage. In addition, all policies of
insurance required under the terms hereof shall contain an
endorsement or agreement by the insurer that any loss shall
be payable in accordance with the terms of such policy
notwithstanding any act or negligence of Developer or any
party holding under Developer which might otherwise result
in a forfeiture of said insurance and the further agreement
of the insurer waiving all rights of setoff, counterclaim or
reductions against Developer. At least ten days prior to
the expiration of each required policy, Developer shall
deliver to Owner evidence of the renewal or replacement of
such policy, continuing such insurance in the form as
required by this Agreement. All such policies shall contain
a provision that they will not be cancelled, allowed to
lapse without renewal, surrendered or amended (which
provision shall include any reduction in the scope or limits
of coverage) without at least 30 days' prior written notice
to Owner or ten days' prior written notice in the event of
non-payment of any premiums due.
11.2 Delivery of Proceeds to Owner. In the event that,
-----------------------------
notwithstanding the loss payable requirement of Section 11.1, the
proceeds of any insurance policy described therein are paid to
Developer, Developer shall deliver such proceeds to Owner
immediately upon receipt.
11.3 Application of Casualty Insurance Proceeds. Any
------------------------------------------
proceeds collected (the "Proceeds") under any fire or other
physical damage insurance policy described in Section 11.1. shall
be disbursed to Developer as provided in Section 11.4 but only
upon fulfillment of each of the following conditions within 180
days following the occurrence of the damage for which the
Proceeds are collected:
(a) Developer shall demonstrate to Owner's reasonable
satisfaction that the Proceeds, together with amounts
deposited by Developer pursuant to subparagraph (b)
immediately below, will be adequate to accomplish the repair
and reconstruction of the Improvements and to restore the
fair market value of the Property to at least the value it
had immediately prior to sustaining the damage. Such
demonstration shall include delivery to Owner of (i) plans
and specifications satisfactory to Owner and (ii) a
construction contract in form and content, and with a
contractor, satisfactory to Owner,
(b) To the extent that the Proceeds are insufficient
to accomplish the repairs and reconstruction required
pursuant to subparagraph (a) above, Developer shall deliver
to Owner funds (the "Shortfall Funds") in the amount of such
shortfall, which funds shall be, at Owner's option, assigned
to Owner as security for Developer's obligations hereunder
and shall be maintained in the Settlement Account with Owner
and disbursed in the same manner as the Proceeds; provided
that in the event it becomes necessary for Developer to
deliver Shortfall Funds to Owner, Developer shall have the
option to purchase the Project upon ten days' prior notice
for a purchase price equal to the total Project Costs
disbursed by Owner, including any accrued but unpaid
interest with respect to such Project Costs, and the payment
of all expenses in connection with such purchase, including
title insurance, survey, recording fees, environmental
reports and reasonable attorneys' fees of Owner.
(c) Developer shall execute such documents, in form
and content satisfactory to Owner, as Owner requires to
evidence and secure Developer's obligation to use all
amounts disbursed for the prompt repair and reconstruction
of the Property in accordance with the plans and
specifications approved by Owner.
(d) There shall have occurred no Event of Default
which is continuing or has not otherwise been cured or
waived, or event which, with the giving of notice or the
passage of time or both, would constitute an Event of
Default, and Owner shall have received a certificate to that
effect signed by a Designated Representative.
11.4 Disbursement of Proceeds. Any Proceeds and Shortfall
------------------------
Funds to be disbursed to Developer shall be held in the
Settlement Account and disbursed in accordance with the
Disbursement procedures and related provisions of this Agreement.
Any amounts remaining undisbursed following completion of (and
full payment for) such repairs and reconstruction shall be
returned to Developer up to the amount of any Shortfall Funds
deposited by Developer, and any other amounts remaining shall
either be paid to Developer or applied by Owner against the
previously disbursed portion of the Maximum Project Amount (which
amounts shall be disbursed again pursuant to the terms hereof),
in such order as Owner choose in its sole discretion.
11.5 Failure of Conditions. In the event Developer fails to
---------------------
fulfill the conditions set forth in Sections 11.3(a) through
11.3(d) within 180 days following the date on which the damage
occurs, the Proceeds shall be retained by Owner and Owner shall
have no further obligation for any Disbursement to Developer
pursuant to this Agreement.
12. CONDEMNATION. All compensation, awards and other amounts
payable in connection with any taking of any portion of the
Property for public use, and any proceeds of any related
settlement regardless of whether eminent domain proceedings are
instituted in connection therewith (collectively, "Compensation")
shall belong to Owner. Developer shall deliver all Compensation
to Owner immediately upon receipt. Any Compensation received by
Owner shall be disbursed to Developer for repairs and
reconstruction, all in accordance with the rights, procedures and
other provisions set forth in Section 11.3 for the application of
casualty insurance proceeds; provided that in the event of any
condemnation of the Property, Developer shall have the option to
purchase the Project upon ten days' prior notice for a purchase
price equal to the total Project Costs disbursed by Owner,
including any accrued but unpaid interest with respect to such
Project Costs, and the payment of all expenses in connection with
such purchase, including title insurance, survey, recording fees,
environmental reports and reasonable attorneys' fees of Owner.
13. DEFAULTS AND REMEDIES.
13.1 Events of Default. The occurrence and continuation of
-----------------
any of the following, whatever the reason therefor, shall
constitute an Event of Default:
(a) An event of default shall occur under the Master
Development Agreement or any other development agreement
between Owner or any of its Affiliates and Developer or any
of its Affiliates; or
(b) Developer shall fail to make a payment payable by
Developer under this Agreement when the same becomes due and
payable and such failure continues for a period of ten days
after written notice from Owner to Developer; or
(c) Any representation, warranty or statement made in
any Document or in any other instrument delivered by
Developer in connection with any Document proves to have
been incorrect in any material respect when made or becomes
so at any time; or
(d) Work on the Project ceases for 21 consecutive days
for any reason (other than Force Majeure Events); or
(e) The Project is not substantially completed within
the period specified in Section 10.1, free and clear of
mechanics', materialmen's and other liens, claims or stop
notices asserted by suppliers of labor, services or
materials; provided that the existence of any such lien(s)
shall not constitute an Event of Default so long as all such
liens are being promptly and actively contested in good
faith and by appropriate proceedings and Developer has
furnished a bond or other security in form, substance and
amount satisfactory to Owner in connection therewith; or
(f) Developer is dissolved or liquidated or merged
with or into any other Person; or for any period of more
than ten days Developer ceases to exist in its present form
and (where applicable) in good standing and duly qualified
under the Laws of the states of Delaware and Texas; or all
or substantially all of the assets of Developer are sold or
otherwise transferred; provided that the foregoing shall not
operate to prevent (i) merger or consolidation of any
subsidiary into Developer or a sale, transfer or lease of
assets by any subsidiary to Developer or (ii) a merger of
any Person into Developer; provided that Developer shall be
the surviving or continuing corporation and, after giving
effect to such merger or consolidation: (A) Developer shall
be in full compliance with the terms of this Agreement and
(B) the management of Developer shall be substantially
unchanged; or
(g) Developer shall (a) be adjudicated as bankrupt or
insolvent; (b) make a general assignment for the benefit of
its creditors; (c) file a petition, answer or consent
seeking, or have entered against it (or fail reasonably to
contest the material allegations of any petition for) an
order for relief (or any similar remedy) under any provision
of Title 11 of the United States Code or any other federal,
state or foreign Law relating to insolvency, bankruptcy,
rehabilitation, liquidation or organization, or consent to
the institution of any proceedings thereunder; (d) convene a
meeting of its or his creditors, or any class thereof, for
the purpose of effecting a moratorium upon or extension or
composition of its debts; (e) fail to pay its debts as the
mature, unless such debts are being contested in good faith
in an appropriate civil action filed in a court of competent
jurisdiction; (f) admit in writing that he or it is
generally not able to pay his or its debts as they mature or
generally not pay his or its debts as they mature; (g) apply
for a consent to the appointment of a receiver, trustee,
custodian, liquidator or other similar official of all or a
portion of his or its assets; or (h) become insolvent; or
(h) If (a) a petition is filed or any case or
proceeding described in subparagraph (h) above is commenced
against Developer or against its assets unless such petition
and the case or proceeding initiated thereby is dismissed or
stayed within 60 days from the date of the filing; (b) an
answer is filed by Developer admitting the allegations of
any such petition; or (c) a court of competent jurisdiction
enters an order, judgment or decree appointing, without the
consent of Developer, a custodian, trustee, agent or
receiver of it, or for all or any part of its property, or
authorizing the taking possession by a custodian, trustee,
agent or receiver of it, or all or any part of its property
unless such appointment is vacated or dismissed or such
possession is terminated within 60 days from the date of
such appointment or commencement of such possession, but not
later than five days before the proposed sale of any assets
of Developer by such custodian, trustee, agent or receiver,
other than in the ordinary course of the business of
Developer; or
(i) Developer, in any material respect, modifies,
amends or terminates any of the Project Agreements without
the Owner's prior written consent; or
(j) Developer fails to secure a building permit for
the Project on or before 30 days from the date hereof.
13.2 Remedies Upon Default. Upon the occurrence of any
---------------------
Event of Default, Owner may, at its option, do any or all of the
following:
(a) Terminate the disbursement or release of Maximum
Project Amount proceeds and apply all or any part of such
proceeds to the Project as Owner deems appropriate in its
sole discretion, until such Event of Default is cured;
(b) Let contracts for, or otherwise proceed with, the
completion of the Project and pay the cost thereof out of
the proceeds of the Maximum Project Amount and funds in the
Settlement Account, and should such cost amount to more than
the total of such funds, then Owner shall have the right
(but no obligation) to pay such additional costs by
expenditure of its own funds (subject to reimbursement by
Developer);
(c) If the Event of Default may be cured by the
payment of money, Owner shall have the right (but no
obligation) to make such payment from any funds in the
Settlement Account or from its own funds; provided that the
making of such payment by Owner from its own funds shall not
be deemed to cure the Event of Default, and provided further
that, if such payment is made from the Settlement Account
and results, or in Owner's judgment may result, in the
reduction of the funds in the Settlement Account below the
amount required to complete the Project, such payment shall
not be deemed to cure the Event of Default until an amount
equal to the shortfall is deposited by Developer in the
Settlement Account pursuant to Section 5.7. hereof; and
(d) Exercise any of its rights under any of the
Documents and any other rights provided by law, all in such
order and manner as Owner in its sole discretion may
determine.
13.3 Cumulative Remedies; No Waiver. Owner's rights and
------------------------------
remedies under the Documents are cumulative and shall be in
addition to all rights and remedies provided by law or in equity
from time to time, or right of offset. The exercise by Owner of
any right or remedy shall not constitute a cure or waiver of any
Event of Default, nor invalidate any notice of default or any act
done pursuant to any such notice, nor prejudice Owner in the
exercise of any other right or remedy, until Owner realizes all
amounts owed to it under the Documents and all Events of Default
are cured. No waiver by Owner of any default shall be implied
from any omission by Owner to take action on account of such
default if such default persists or is repeated. No waiver by
Owner of any default shall affect any default other than the
default expressly waived, and any such waiver shall be operative
only for the time and to the extent stated. No waiver of any
covenant or condition of any Document shall be construed as a
waiver of any subsequent breach of the same covenant or
condition. Owner's consent to or approval of any act by
Developer requiring further consent or approval shall not be
deemed to waive or render unnecessary Owner's consent to or
approval of any subsequent act.
14. MISCELLANEOUS.
14.1 Actions. Owner shall have the right to commence,
-------
appear in and defend any action or proceeding purporting to
affect the rights or obligations of the parties to any Document.
14.2 Default by Owner. Owner shall be in default of its
----------------
obligations under this Agreement if Owner shall fail to observe
or perform any term, covenant or condition of this Agreement on
its part to be performed and such failure shall continue for a
period of 30 days after written notice thereof is received by
Owner, unless such failure cannot with due diligence be cured
within a period of 30 days, in which case such failure shall not
be deemed to continue if Owner, within said 30-day period,
proceeds promptly and with due diligence to cure the failure and
diligently completes the curing thereof. In the event Owner
fails to cure any such default, Developer may purchase the
Project from Owner for a purchase price equal to the sum of all
Project Costs disbursed to date together with interest on such
sums at the Base Rate from the date of disbursement through the
date of payment. In the event Developer elects to purchase the
Project, it shall deliver a notice thereof to Owner specifying a
date occurring no less than 90 days subsequent to the date of
such notice on which it shall purchase the Project, and the same
shall be thereupon conveyed in accordance with the provisions of
Article XVII of the Facility Lease.
14.3 Disclaimer. Developer acknowledges and agrees that:
----------
(a) The relationship between Developer and Owner is
and shall remain solely that of owner and developer, and
Owner neither undertakes nor assumes any responsibility to
select, review, inspect, supervise, pass judgment upon or
inform Developer of any matter in connection with the
Project, including matters relating to the suitability of:
(A) the Improvement Plans, (B) architects, contractors,
subcontractors and materialmen, or the workmanship of or the
materials used by any of them, or (C) the progress of the
Project and its conformity with the Improvement Plans.
Developer shall rely entirely on its own judgment with
respect to the foregoing matters and acknowledges that any
review, inspection, supervision, exercise of judgement or
information supplies to Developer by Owner in connection
with such matters is solely for the protection of Owner and
that neither Developer nor any third party is entitled to
rely on it;
(b) Notwithstanding any other provision of any
Document: (A) Owner is not a partner, joint venturer,
alter-ego, manager, controlling person or other business
associated or participant of any kind of Developer and Owner
does not intend to ever assume any such status and (B) Owner
shall not be deemed responsible for or a participant in any
acts, omissions or decisions of Developer; and
(c) Owner shall not be directly or indirectly liable
or responsible for any loss or injury of any kind to any
person or property resulting from any construction on, or
occupancy or use of, the Property, whether arising from:
(A) any defect in any building, grading, landscaping or
other onsite or offsite improvement, (B) any act or omission
of Developer or any of Developer's agents, employees,
independent contractors, licensees or invitees, (C) any
accident on the Property or any fire, flood or other
casualty or hazard thereon, (D) the failure of Developer or
any of Developer's licensees, employees, invitees, agents,
independent contractors or other representatives to maintain
the Property in a safe condition, and (E) any nuisance made
or suffered on the Property; unless any of the foregoing
arises from or results from the active negligence or willful
misconduct of the Owner, its employees or agents.
14.4 Representations by Owner. Owner is a duly formed and
------------------------
validly existing Maryland corporation and has the requisite power
and authority to enter into this Agreement. By accepting or
approving anything required to be performed or given to Owner
under the Documents (other than the foregoing representation
regarding formation, validity and authority), including any
certificate, financial statement, survey, appraisal or insurance
policy, Owner shall not be deemed to have warranted or
represented the sufficiency or legal effect of the same, and no
such acceptance or approval shall constitute a warranty or
representation by Owner to anyone.
14.5 Indemnity. Developer hereby indemnifies and holds
---------
harmless Owner and its directors, officers, agents and employees
(collectively, "Indemnitee") from and against:
(a) all claims, demands and causes of action asserted
against any Indemnitee by any Person if the claim, demand or
cause of action directly or indirectly relates to (i) a
claim, demand or cause of action that the Person has or
asserts based on Developer's acts or omissions against the
Property, Developer, (ii) the payment of any commission,
charge or brokerage fee incurred in connection with this
Agreement or the Documents based on Developer's acts or
omissions, or (iii) any act or omission of Developer, any
contractor, subcontractor or material supplier, engineer,
architect or other Person with respect to the Property, or
(iv) any claim or cause of action of any kind by any Person
based on Developer's acts or omissions, which would have the
effect of denying Owner the full benefit or protection of
any provision of any Document (excluding charges and
assessments by Governmental Agencies imposed upon Owner in
the normal course of Owner's business); and
(b) all liabilities, losses and other costs (including
court costs and attorneys' fees) incurred by any Indemnitee
as a result of any claim, demand or cause of action
described in subparagraph (a).
(c) In case any claim, demand or cause of action shall
be brought by any third party against any Indemnitee
hereunder, such Indemnitee shall promptly notify Developer
in writing and Developer shall assume the defense thereof,
including the employment of counsel approved in writing by
such Indemnitee, which approval shall not be unreasonably
withheld. In addition, in case any Indemnitee shall become
aware of any facts which might result in any such claim,
demand or cause of action, such Indemnitee shall promptly
notify Developer thereof in writing, who shall have the
right to take such action as may be reasonably appropriate
to resolve such matter. An Indemnitee shall have the right
to employ separate counsel in any such third party action,
but the fees and expenses of such counsel shall be at the
expense of such Indemnitee unless the employment of such
counsel has been separately authorized in writing by
Developer or Developer has failed to employ counsel. An
Indemnitee shall cooperate fully in the defense of any such
third party claim, demand and cause of action and shall
engage in no conduct prejudicial to the defense thereof.
Developer shall not be liable for any settlement of any such
third party claim, demand or cause of action effected
without its consent, but if settled with the consent of
Developer or if there shall be a final judgment for the
plaintiff in any such third party action, Developer shall
indemnify and hold harmless the Indemnitee from and against
any loss or liability by reason of such settlement or
judgment.
Owner's rights of indemnity shall not be directly or
indirectly limited, prejudiced, impaired or eliminated in
any way by any finding or allegation that Owner's conduct is
active, passive or subject to any other classification or
that Owner is directly or indirectly responsible under any
theory of any kind for any act or omission by Developer or
any other person. Notwithstanding the foregoing Developer
shall not be obligated to indemnify Owner or any Indemnitee
with respect to any willful misconduct or act of negligence
of Owner.
14.6 Easements. Developer shall not, without the prior
---------
written consent of Owner, which consent shall not be unreasonably
withheld, (a) initiate, join in or consent to any private
restrictive covenant or other public or private restrictions as
to the use of the Property or any zoning reclassification of the
Property (or any part thereof); or (b) seek any variance under
(or deviation from) any existing zoning laws or ordinances
applicable to the Property (or any part thereof); or (c)
voluntarily grant any easement, right of way, privilege, license,
franchise or other property right affecting the Property, other
than easements for utilities servicing the Property, or otherwise
allow any such right to be created voluntarily by defaulting
under any obligation or affirmatively acquiescing or consenting
to the same.
14.7 Survival of Representations and Warranties. All
------------------------------------------
representations and warranties of Developer in the Documents
shall survive the execution of this Agreement and the completion
of the Project and have been or will be relied on by Owner
notwithstanding any investigation made by or on behalf of Owner.
For the purpose of the foregoing, all statements contained in any
document prepared or executed by Developer in connection with the
transactions contemplated hereby, shall be deemed to be
representations and warranties of Developer contained in the
Documents.
14.8 Notices. Any notices, demands, approvals and other
-------
communications provided for in this Agreement shall be in writing
and shall be delivered by telephonic facsimile, overnight air
courier, personal delivery or registered or certified U.S. Mail
with return receipt requested, postage paid, to the appropriate
party at its address as follows:
If to Owner:
CAPSTONE CAPITAL CORPORATION
1000 Urban Center Drive, Suite 630
Birmingham, Alabama 35242
Attention: Mr. John W. McRoberts
Telephone: (205) 967-2092
Telecopy: (205) 967-9066
with a copy to:
Thomas A. Ansley, Esq.
Sirote & Permutt, P. C.
2222 Arlington Avenue
Birmingham, Alabama 35205
Telephone: (205) 930-5300
Telecopy: (205) 930-5301
If to Developer:
GRAND COURT LIFESTYLES, INC.
One Executive Drive
Fort Lee, New Jersey 07024
Attention: Mr. Paul Jawin
Telephone: (201) 947-7322
Telecopy: (201) 947-6663
with a copy to:
Robert W. Strauss, Esq.
Strasburger & Price, L.L.P.
901 Main Street, Suite 4300
Dallas, Texas 75202
Telephone: (214) 651-4629
Telecopy: (214) 651-4330
Addresses for notice may be changed from time to time by
written notice to all other parties. Any communication given by
mail will be effective (i) upon the earlier of (a) three business
days following deposit in a post office or other official
depository under the care and custody of the United States Postal
Service or (b) actual receipt, as indicated by the return
receipt; (ii) if given by telephone facsimile, when sent; and
(iii) if given by personal delivery or by overnight air courier,
when delivered to the appropriate address set forth.
14.9 No Third Parties Benefitted. This Agreement is made
---------------------------
for the purpose of setting forth certain rights and obligations
of Developer and Owner in connection with the Project. It is
made for the sole protection of Developer, Owner and their
respective successors and assigns, and no other Person shall have
any rights hereunder or by reason hereof.
14.10 Binding Effect. This Agreement shall bind, and
--------------
shall inure to the benefit of, Developer and Owner and their
respective successors and assigns.
14.11 Counterparts. Any Document may be executed in any
------------
number of counterparts and any party thereto may execute any
counterpart, each of which when executed and delivered will be
deemed to be an original and all of which, taken together, will
be deemed to be but one and the same document. The execution of
any Document by any party will not become effective until
counterparts have been executed by all of the parties thereto.
14.12 Prior Agreements; Amendments; Consents. This
--------------------------------------
Agreement, together with the Documents, contain the entire
agreement between Owner and Developer with respect to the Project
and all prior negotiations, understandings and agreements are
superseded by this Agreement. No supplement, extension,
termination or other modification of any provision of any
Document, and no consent to any departure by Developer therefrom,
shall be effective unless in writing and signed by Owner, and
then only in the specific instance and for the specific purpose
given.
14.13 Governing Law. All of the Documents shall be
-------------
governed by, and construed and enforced in accordance with, the
laws of the State of Alabama. Without limiting the right of
Owner to bring any action or proceeding against Developer or the
Property arising out of or relating to its obligation under the
Documents (an "Action") in the courts of other jurisdictions,
Developer hereby irrevocably submits to the jurisdiction of the
courts of the State of Alabama or any federal court in the State
of Alabama and Developer hereby irrevocably agrees that any
Action may be heard and determined in such state or federal
court. Developer hereby irrevocably waives, to the fullest
extent that it may effectively do so, the defense of an
inconvenient forum to the maintenance of any Action in the
jurisdiction. Developer hereby irrevocably agrees that the
summons and complaint or any other process in any Action in any
jurisdiction may be served by mailing to any of the addresses set
forth herein or by hand delivery to a person of suitable age and
discretion at any such address. Such service shall be complete
on the date such process is so mailed or delivered.
14.14 Maximum Rate. As used herein, the term "Maximum
------------
Rate" shall mean and refer to the maximum rate of non-usurious
charges and interest, if any, that Owner may from time to time
charge Developer and in regard to which Developer would be
prevented successfully from raising the claim or defense of usury
under applicable law as now, or to the extent permitted by law,
as may hereafter be, in effect (said law permitting the highest
rate being herein referred to as the "Interest Law"). It is the
intention of Developer and Owner to conform strictly to the
Interest Law applicable to this transaction. Accordingly, it is
agreed that notwithstanding any provision to the contrary in this
Agreement or in any of the Documents or instruments relating
thereto, the aggregate of all interest and any other charges or
consideration constituting interest under applicable Interest Law
that is taken, reserved, contracted for, charged or received
under this Agreement or under any of the other aforesaid
agreements or otherwise in connection with this transaction shall
under no circumstances exceed the maximum amount of interest
allowed by the Interest Law applicable to this transaction. If
any excess of interest in such respect is provided for, or shall
be adjudicated to be so provided for, in this Agreement or in any
of the Documents or other instruments relating thereto, then in
such event (a) the provisions of this Section shall govern and
control, (b) neither Developer nor Developer's heirs, legal
representatives, successors or assigns or any other party liable
for Developer's obligations hereunder shall be obligated to pay
the amount of such interest to the extent that it is in excess of
the maximum amount of interest allowed by the Interest Law
applicable to this transaction, (c) any excess shall be deemed a
mistake and cancelled automatically and, if theretofore paid,
shall be credited by Owner (or refunded to Developer), and (d)
the effective rate of interest shall be automatically subject to
reduction to the Maximum Rate as now or hereafter construed by
courts of appropriate jurisdiction. All sums paid or agreed to
be paid the Owner for the use, forbearance or detention of the
indebtedness shall, to the extent permitted by the Interest Law
applicable to this transaction, be amortized, prorated, allocated
and spread throughout the full term of the indebtedness.
14.15 Waivers. Each of the parties hereto recognizes
-------
that in matters related to this Agreement, it may be entitled to
a trial in which matters of fact are determined by a jury (as
opposed to a trial in which such matters are determined by a
federal or state judge). Each of the undersigned also recognizes
that one of the remedies available to it in any trial may, under
certain circumstances, be the right to receive damages in excess
of those actually sustained by it. In the past, in some
instances, such damages have equaled or exceeded the amount of
actual damages.
(a) EACH PARTY TO THIS AGREEMENT HEREBY EXPRESSLY
WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND,
ACTION OR CAUSE OF ACTION (I) ARISING UNDER THIS AGREEMENT
OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR
DELIVERED IN CONNECTION HEREWITH, OR (II) IN ANY WAY
CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF
THE PARTIES HERETO OR ANY OF THEM WITH RESPECT TO THIS
AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT
EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR THE
TRANSACTIONS RELATED HERETO OR THERETO, IN EACH CASE WHETHER
NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN
CONTRACT OR TORT OR OTHERWISE; AND EACH PARTY HEREBY AGREES
AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF
ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND
THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL
COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS
WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE
WAIVER OR THEIR RIGHT TO TRIAL BY JURY.
(b) TO THE MAXIMUM EXTENT NOW PERMITTED BY LAW, EACH
OF THE PARTIES HERETO KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVES ANY RIGHT IT MAY HAVE TO CLAIM OR
RECOVER IN ANY SUCH LITIGATION ANY SPECIAL, EXEMPLARY,
PUNITIVE, OR CONSEQUENTIAL DAMAGES, OR ANY DAMAGES OTHER
THAN, OR IN ADDITION TO, ACTUAL DAMAGES.
(c) EACH OF THE UNDERSIGNED HEREBY CERTIFIES THAT
NEITHER ANY REPRESENTATIVE OR AGENT OF THE OWNER NOR THE
OWNER'S COUNSEL HAS REPRESENTED, EXPRESSLY OR OTHERWISE, OR
IMPLIED THAT THE OWNER WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS. EACH OF
THE UNDERSIGNED ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO
ENTER INTO OR BECOME A SURETY WITH RESPECT TO THIS
TRANSACTION BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS HEREIN.
14.16 Severability of Provisions. No provision of any
--------------------------
Document that is held to be inoperative, unenforceable or invalid
shall affect the remaining provisions, and to this end all
provisions of the Documents are hereby declared to be severable.
14.17 Time of Essence. Time is of the essence in all of
---------------
the Documents.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first written above.
Developer:
GRAND COURT LIFESTYLES, INC.
a Delaware corporation
By:
---------------------------
Its:
--------------------------
Owner:
CAPSTONE CAPITAL CORPORATION
------------------------------
John W. McRoberts
President
<PAGE>
EXHIBIT A
DEFINITIONS
As used in this Development Agreement (and in all other
Documents, unless otherwise defined), the following capitalized
terms shall have the following meanings:
"Affiliate" means any Person directly or indirectly
controlling, controlled by or under direct or indirect common
control with Developer or Owner, as the case may be. For the
purposes of this definition, "control", as used with respect to
any Person, shall mean the possession, directly or indirectly, of
the power to direct or cause the direction of the management and
policies of such Person, through the ownership of voting
securities, partnership interests or other equity interests.
"Agreement" means this Development Agreement as it may be
supplemented, amended, renewed, restated, extended or replaced.
"Appraisal" means an appraisal of the Property prepared by
an M.A.I. appraiser approved by Owner in writing.
"Approved Budget" means the line item budget for the Project
with respect to which Owner has agreed to fund construction
advances pursuant to the provisions of this Agreement, as
originally approved in writing by Owner and as supplemented and
modified in writing from time to time in accordance with the
terms of this Agreement, a copy of which Approved Budget is
attached hereto as Exhibit B.
---------
"Architect" means [Architect and Associates, Ltd.] and/or
any other architect for the Project approved by Owner in writing.
"Architect Agreement" means that certain agreement with the
Architect for work on the Project.
"Assignment of Contracts" means the assignment to be
executed and delivered by Developer assigning to Owner the
Project Agreements and all plans and other documents executed,
prepared or used by Developer in connection with the Project (as
hereafter defined).
"Base Rate" means the sum of the Prime Rate plus one
percent.
"Business Day" means any day other than a day on which
banking institutions in Birmingham, Alabama are authorized by law
to close.
"Certificate of Authority" means the certificate to be
delivered by Developer to Owner pursuant to Section 4.1 hereof
pursuant to the terms of which Developer appoints a Designated
Representative for purposes of this Agreement, as amended from
time to time.
"Change Orders" means changes in the Improvement Plans
pursuant to Section 10.3 hereof.
"Commitment Fee" has the meaning set forth in Section 3.3.
"Consolidated Net Worth" means at any time, the sum of the
following for Developer on a consolidated basis determined in
accordance with generally accepted accounting principles:
(a) the amount of capital or stated capital (after
deducting the cost of any treasury shares or like
interests), plus
(b) the amount of capital surplus and retained
earnings (or, in the case of a capital surplus or retained
earnings deficit, minus the amount of such deficit), minus
(c) the sum of the following (without duplication of
deductions in respect of items already deducted in arriving
at capital surplus and retained earnings): (i) unamortized
debt discount and expense; (ii) any write-up in book value
of assets resulting from a revaluation thereof subsequent to
the most recent financial statement of Developer prior to
the date thereof, except any net write-up in value of
foreign currency; (iii) any write-up resulting from a
reversal of a reserve for bad debts or depreciation; and
(iv) any write-up resulting from a change in methods of
accounting for inventory.
"Construction Contracts" means any and all construction
contracts between Developer and Contractor (as hereafter defined)
or between Developer and any other person or entity relating to
the rendering of services or the furnishing of material,
supplies, equipment or labor in connection with the construction
of the Improvements, each of which contract shall be for a fixed
price or guaranteed maximum amount and shall otherwise be in form
and substance satisfactory to Owner.
"Contractor" means [Acme Construction Co., Inc.] or any
other general contractor for the Project approved by Owner from
time to time.
"Designated Representative" means any of the individuals
identified on the Certificate of Authority delivered by Developer
to the Owner on the date of this Agreement, or any subsequent
Certificate of Authority so delivered identifying the individuals
having the authority to act on behalf of Developer in connection
with the Project, this Agreement and the Documents.
"Developer's Fee" means the line item on the Approved Budget
in the amount of $________.00 labeled "Developer's Fee Section
5.9 Payment" to be paid to Developer.
"Disbursement" means an advance by Owner of any of the
Project Costs or from the Settlement Account.
"Disbursement Request" means a request by Developer for
Disbursements in the form attached hereto as Exhibit C.
---------
"Documents" mean, collectively, this Agreement, the Master
Development Agreement, the Environmental Indemnity, the Project
Consents, the Project Agreements and any other document that
Owner requires from time to time to effectuate the purposes of
this Agreement, but excluding the Facility Lease.
"Environmental Indemnity" means the Environmental Indemnity
Agreement of even date herewith executed by Developer in favor of
Owner.
"Estimated Completion Amount" has the meaning set forth in
Section 5.10.
"Event of Default" means any event so designated in Section
13 hereof.
"Facility Lease" means that certain lease agreement of even
date herewith between Owner, as landlord, and Developer, as
tenant, for the lease of the Project.
"Fiscal Year" means Developer's fiscal year, ending on
January 31 of each calendar year.
"Force Majeure Events" means only delays due to strikes,
acts of God, inability to obtain labor or materials, governmental
restrictions, litigation, enemy action, civil commotion, fire or
similar causes, provided such similar causes are also beyond
Developer's reasonable control.
"Governmental Agency" means the United States, the State,
County, City, Town or Township in which the Property is located,
or any other political subdivision in which any portion of the
Property is located, and any other political subdivision, agency,
authority, board, department, or instrumentality properly
exercising jurisdiction over Developer, Contractor, project
manager or any part of the Property.
"Hazardous Materials" means any flammable explosives,
radioactive materials, hazardous materials, hazardous wastes,
hazardous or toxic substances, or related materials as defined in
the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended (42 U.S.C. Section 9601 et
seq), the Hazardous Materials Transportation Act, as amended (49
U.S.C. Section 1801 et seq.), the Resource Conservation and
Recovery Act, as amended (42 U.S.C. Section 6901 et seq.), the
Atomic Energy Act, and in the regulations adopted and
publications promulgated pursuant thereto, and all asbestos
(friable or non-friable), petroleum derivatives, polychlorinated
biphenyls, flammable substances and materials defined as
hazardous materials under any federal, state or local laws,
ordinances, codes, rules, orders, regulations or policies
governing the use, storage, treatment, transportation,
manufacture, refinement, handling, production or disposal
thereof.
"Impositions" means, collectively, all taxes relating to the
Project, including all ad valorem, sales and use, gross receipts,
action, privilege, rent or similar taxes, assessments (including
all assessments for public improvements or benefits, whether or
not commenced or completed prior to the date hereof and whether
or not to be completed prior to the termination hereof) water,
sewer or other rents and charges, excises, tax levies, fees
(including license, permit, inspection, authorization and similar
fees), and all other governmental charges, in each case whether
general or special, ordinary or extraordinary, or foreseen or
unforeseen, of every character in respect of the Project
(including all interest and penalties thereon due to any failure
in payment by Developer); provided that nothing contained in this
Agreement shall be construed to require Developer to pay any tax
based on gross or net income (whether denominated as a franchise
or capital stock or other tax) imposed on Owner.
"Improvement Plans" means the final working plans and
specifications for the construction of the Project, including,
but not limited to, drawings, specifications, details and manuals
for the construction of the Project prepared and signed by the
Architect. All mechanical, electrical, structural and other
specialized drawings and specifications shall be signed by
licensed engineers of the respective disciplines normally
responsible for such drawings and specifications.
"Improvements" means the assisted and independent living
facility to be known as Grand Court containing
----------------
approximately units and gross square feet (
---- -------- --------
Net Rentable) with surface parking for automobiles
--------
together with all appurtenant improvements to be constructed on
the Property in accordance with the Improvement Plans.
"Interest Law" has the meaning set forth in Section 14.14.
"Laws" means, collectively, all international, foreign,
federal, state and local statutes, treaties, rules, regulations,
ordinances, codes and administrative or judicial decisions or
precedents, of or by any Governmental Agency.
"Lease-Up Allowance" has the meaning set forth in Section
5.11.
"Marketing Allowance" has the meaning set forth in Section
5.11.
"Master Development Agreement" means that certain master
development agreement dated June 20, 1996, between Developer and
Owner for the development, construction, use and operation of up
to four assisted and independent living facilities, including the
Project.
"Maximum Project Amount" means the maximum sum indicated on
the Approved Budget to be advanced by Developer for payment of
the Project Costs, the Commitment Fee and the Developer's Fee in
accordance with, and subject to the terms and provisions of, this
Agreement, and is equal to $ .00.
----------------
"Maximum Rate" is defined in Section 14.13.
"Owner's Engineer" means CLJ Associates, Inc. or any other
individual or engineering firm hired by Owner to advise and
assist Owner in connection with the Project, including inspecting
the progress of construction.
"Permitted Encumbrances" means, collectively, all exceptions
to the Title Policy approved by Owner in writing and all other
liens, restrictions and other title limitations hereafter
approved by Owner in writing.
"Person" means any entity, whether an individual, trustee,
corporation, partnership, joint venture, trust, estate,
unincorporated organization, Governmental Agency or otherwise.
"Personal Property" means all of Owner's interest in all
furniture, furnishings, fixtures, machinery, equipment, inventory
and other personal property of every kind, whether now existing
or hereafter acquired, tangible and intangible, now or hereafter
located on or about the Property, and used or to be used in the
future in connection with the operation of the Project, and, in
all events, paid for with funds from Owner.
"Prime Rate" means the annual rate reported by The Wall
Street Journal, Eastern Edition (or, if The Wall Street Journal
shall no longer be published or shall cease to report such rates,
then a publication or journal generally acceptable in the
financial industry as authoritative evidence of prevailing
commercial lending rates) from time to time as being the
prevailing prime rate (or, if more than one such rate shall be
published in any given edition, the arithmetic mean of such
rates). The prime rate is an index rate used by The Wall Street
Journal to report prevailing lending rates and may not
necessarily be its most favorable lending rate available. Any
change in the Prime Rate hereunder shall take effect on the
effective date of such change in the prime rate as reported by
The Wall Street Journal, without notice to Lessee or any other
action by Lessor. Interest shall be computed on the basis that
each year contains 360 days, by multiplying the principal amount
by the per annum rate set forth above, dividing the product so
obtained by 360, and multiplying the quotient thereof by the
actual number of days elapsed.
"Project" means the Property and the Improvements to be
constructed thereon in accordance with the Improvement Plans,
including but not limited to all "off-site" construction work to
be performed by Developer.
"Project Agreements" means, collectively, all agreements
entered into by Developer with Persons other than Owner in
connection with the Project, including without limitation, the
Construction Contracts and the Architect Agreement.
"Project Consents" means the Architect's Consent and
Agreement and the Contractor's Consent and Agreement described in
Section 4.
"Project Costs" means the total of the costs, expenses and
fees required for the construction of the Project as set forth in
the Approved Budget, including the Developer's Fee, the
Commitment Fee any applicable Real Estate Acquisition Amount (as
defined in the Master Development Agreement), transaction costs,
marketing and lease-up costs, contingency, soft costs and the
costs of the Personal Property.
"Property" means the real property located in
County, Texas, and described in Exhibit A-1
---------------- -----------
attached hereto, together with all easements and other rights now
or hereafter made appurtenant thereto.
"Release Date" has the meaning set forth in Section 5.10.
"Settlement Account" means an interest bearing account
established and maintained solely by Owner at a bank where
deposits are insured by the FDIC selected by Owner.
"Shortfall Funds" has the meaning set forth in Section
11.3(b).
"Surveyor" means [Straight Line, Inc.]
"Title Company" means any title insurance company selected
by Developer and reasonably acceptable to Owner.
"Title Policy" means an Texas Insurance Commission form of
Owner Policy of Title Insurance (Form T-1), together with such
endorsements thereto as are reasonably and customarily required
by institutional purchasers of real property similar to the
Project, issued by a title company reasonably acceptable to
Owner, insuring title to the fee interest in the Project in Owner
in an amount at least equal to the Maximum Project Amount,
subject only to the exceptions approved by Owner and to the
standard printed exceptions included in the Texas standard form
owner policy of title insurance, with the following
modifications: (a) the exception for areas and boundaries shall
be modified to read "shortages in area; (b) the exception for ad
valorem taxes shall reflect only taxes for the current and
subsequent years and subsequent taxes and assessments by any
taxing authority for prior years due to changes in land usage or
ownership; (c) there shall be no general exception for visible
and apparent easements or roads and highways or similar items
(with any exception for visible and apparent easements or roads
and highways or similar items to be specifically referenced to
and shown on the survey and also identified by applicable
recording information); and (e) all other exceptions shall be
modified or endorsed in a manner reasonably acceptable to Owner.
<PAGE>
EXHIBIT A-1
LEGAL DESCRIPTION
<PAGE>
EXHIBIT B
APPROVED BUDGET
[to be supplied]
<PAGE>
EXHIBIT C
----------------------------------------------------------------------
DESCRIPTION SCHEDULED SCHEDULED PRIOR
VALUE VALUE DRAWS
REVISED
----------------------------------------------------------------------
LAND:
Acquisition Cost
Assessment/Impact Fees
Engineering/Environmental/Testing
Landscaping (in construction cost)
CONSTRUCTION COST:
Covered Parking
Base Building (including builder's
risk insurance and bond premium)
Tenant Finish Allowance
FF&E (public areas, recreational
spaces and dining rooms)
INDIRECT COST:
Architectural & Engineering
Marketing Allowance
Appraisal
Legal Expenses/Accounting
Administrative/Management
Closing Cost/Title Policy
Real Estate Taxes (during construction)
Insurance/Bond
Commitment Fee
Inspection Fee
Interest During Construction
Broker/Dealer Fees
Tenant Relocation
Lease Up Allowance
Leasing Fees
Developer Fees
Capstone's Engineer
CONTINGENCY
---------------------------------------------------------------------
TOTAL
---------------------------------------------------------------------
PURCHASE DOWN PAYMENT
TOTAL CONSTRUCTION LOAN FUNDED
TOTAL COST TO DATE:
LESS PRIOR DRAWS:
CURRENT AMOUNT REQUESTED
---------------------------------------------------------------------
---------------------------------------------------------------------
CURRENT TOTAL BALANCE TO
DESCRIPTION DRAWS DRAWS FUND
---------------------------------------------------------------------
LAND:
Acquisition Cost
Assessment/Impact Fees
Engineering/Environmental/Testing
Landscaping (in construction cost)
CONSTRUCTION COST:
Covered Parking
Base Building (including builder's risk
insurance and bond premium)
Tenant Finish Allowance
FF&E (public areas, recreational spaces and
dining rooms)
INDIRECT COST:
Architectural & Engineering
Marketing Allowance
Appraisal
Legal Expenses/Accounting
Administrative/Management
Closing Cost/Title Policy
Real Estate Taxes (during construction)
Insurance/Bond
Commitment Fee
Inspection Fee
Interest During Construction
Broker/Dealer Fees
Tenant Relocation
Lease Up Allowance
Leasing Fees
Developer Fees
Capstone's Engineer
CONTINGENCY
----------------------------------------------------------------------
TOTAL
----------------------------------------------------------------------
<PAGE>
CERTIFICATION
In accordance with the terms of the Development Agreement between
CAPSTONE CAPITAL CORPORATION and GRAND COURT LIFESTYLES, INC.
dated ________________________ ___, 1996 (the "Development
Agreement"), you are hereby authorized and requested to make
immediate disbursement of funds held by you for the Project in
the amount of the Disbursement Request specified, in accordance
with the attached Disbursement Request and Developer's
Application and Certificate for Payment, which are incorporated
herein by this reference and made a part hereof and which
indicate the Item from which funds are requested and supporting
invoices. You are further hereby authorized, at your option, to
make such disbursement to the Developer's Settlement Account
identified in the Development Agreement or at your further
option, to transfer any or all of such funds so disbursed into
the disbursement account of the Contractor maintained with you
for the Project, or as otherwise permitted by the Development
Agreement.
The undersigned hereby certifies that:
(i) the labor, services and/or materials covered hereby
have been performed upon or furnished to the above referred to
Project;
(ii) there have been no changes in the Approved Budget
attached as Exhibit B to the above-referenced Development
---------
Agreement, except those approved by you in writing;
(iii) all construction to date has been performed
substantially in accordance with the plans and specifications for
the Improvements approved by you, and there have been no changes
in those plans and specifications except as may be expressly
permitted by the above-referenced Development Agreement or as
have been approved by you in writing;
(iv) there have been no material changes in the scope or
time of performance of the work of construction, nor any material
extra work, labor or materials ordered or contracted for, nor are
any such changes or extras contemplated, except as may be
expressly permitted by the above-referenced Development Agreement
or as have been approved by you in writing;
(v) the payments to be made with the funds requested herein
will pay all bills received to date for any labor, materials and
services furnished in connection with construction of the
Improvements;
(vi) all amounts previously disbursed by you for labor,
services and/or materials for the above referred to Project
pursuant to previous Applications have been paid to the parties
entitled thereto; and
(vii) all conditions to the disbursement of the funds
requested herein set forth in the above-referenced Development
Agreement have been fulfilled, and to the knowledge of the
undersigned, no Event of Default under the above-referenced
Development Agreement has occurred and is continuing.
GRAND COURT LIFESTYLES, INC.
a Delaware corporation
By:
--------------------------
Its:
-------------------------
Date:
----------------------
STATE OF
------------- )
)
COUNTY OF
------------ )
SUBSCRIBED AND SWORN to before me on this day of
----
, 1996.
-----------
---------------------------------
Notary Public in and for
The State of
--------------------
Name:
---------------------------
My Commission Expires:
-----------
<PAGE>
EXHIBIT D
ARCHITECT'S COMPLETION CERTIFICATE
STATE OF
---------- )
)
COUNTY OF
-------- )
TO: CAPSTONE CAPITAL CORPORATION
The undersigned, Architect and Associates, Ltd. (the
"Architect"), does hereby state to the best of their knowledge,
information and belief as follows:
(1) That is was retained by GRAND COURT LIFESTYLES, INC., a
Delaware corporation ("Developer"), in connection with that
certain project consisting of an assisted and independent living
facility containing gross square foot ( Net
-------- --------
Rentable) and appurtenant improvements known as
(the "Project") and located on
------------------------
approximately acres of land, in County,
-------- ----------------
, as more particularly described in Exhibit A
---------------- ---------
attached hereto and made part hereof by reference (the "Land")
and, as such, is Architect or record.
(2) That it prepared and/or coordinated the plans and
specifications identified in Exhibit B attached hereto and made a
---------
part hereof by reference (the "Plans and Specifications"), which
Plans and Specifications were used in connection with the
construction of the Project and copies of which have been
delivered to Owner.
(3) That, based upon periodic site inspections (a) the
construction of the improvements and the development of the
Project have been substantially completed in accordance with the
Plans and Specifications, including the installation of specified
fixed machinery and equipment, such as plumbing, heating,
ventilation, air conditioning, systems and other building
facilities; (b) the Project and said machinery, equipment,
systems and facilities are in good working order and condition;
(c) all certificates of occupancy and other permits required by
applicable law prior to occupancy of the Project have been
secured; (d) the final inspection by the City of
----------------
Building Department has been completed and the Project has been
approved by the Building Department for
----------------
occupancy; and (e) the only items remaining to be completed are
the punch list set forth in the AIA Form Certificate of
Substantial Completion delivered herewith.
The term "substantially completed," as used herein, means
that the Project is sufficiently complete, in accordance with the
Plans and Specifications, so that the Project can be
substantially occupied and utilized for the use for which it is
intended.
(4) That the undersigned is an architect duly licensed and in
good standing under the laws of the State of Texas.
(5) That, as of this date, the undersigned has no legal interest
in or to the Project or the Land upon which the Project is
constructed.
IN WITNESS WHEREOF, the undersigned has hereunto set its
hand and seal this day of
---------- ----------------------------,
1996.
ARCHITECT AND ASSOCIATES, LTD.
By:
------------------------
Name:
----------------------
Title:
---------------------
ATTEST:
-----------------------
(Corporate Seal)
ACKNOWLEDGEMENT
STATE OF
---------- )
)
COUNTY OF
---------- )
The foregoing instrument was acknowledged before me this
day of , 1996, by
------- ---------------------- -----------------
, as of
--------------------- -------------------------------
Architect and Associates, Ltd. on behalf of the corporation.
-----------------------------
Notary Public in and for
The State of
-----------------
Name:
------------------------
My Commission Expires:
-------
<PAGE>
EXHIBIT E
NOT USED
<PAGE>
EXHIBIT F
ARCHITECT'S CONSENT AND AGREEMENT
This Architect's Consent and Agreement ("Agreement"), dated
as of ________________________ ___, 1996, is executed by
Architect and Associates, Ltd. (the "Architect") in connection
with that certain Development Agreement (the "Development
Agreement") dated ________________________ ___, 1996, between
GRAND COURT LIFESTYLES, INC., a Delaware corporation
("Developer"), and CAPSTONE CAPITAL CORPORATION ("Owner"),
pursuant to which Owner has agreed to make certain advances (the
"Advances") in an amount sufficient to finance the construction
of an ancillary hospital facility and appurtenant facilities (the
"Improvements") to be constructed in accordance with certain
plans and specifications to be prepared by Architect on the real
property situated in ________________ County, ________________,
at the ________________________________, more particularly
described in Exhibit 1 attached hereto and incorporated herein by
---------
this reference (the "Property"). The Property and the
Improvements are collectively referred to herein as the
"Project." The Architect will be the general architect and the
general engineer for the Project pursuant to the following: _____
______________________________ (the "Contract").
1. CONSENT TO ASSIGNMENT.
---------------------
Architect hereby consents to and agrees to be bound by all the
provisions of that certain Assignment of Contracts (the
"Assignment") by and between Owner and Developer, dated of even
date with the Development Agreement, the provisions of which are
hereby incorporated fully by reference. Architect acknowledges
that the Assignment shall not, in the absence of an affirmative
assumption in writing by Owner of Developer's obligations
thereunder, be deemed to impose any liability or obligation upon
Owner and Architect further agrees that: (a) Architect shall
give written notice to Owner of any default of Developer under
the Contract at least 30 days prior to suspending or terminating
its obligations under the Contract, (b) Architect shall, at the
request of Owner and without regard to any prior default of
Developer under the Contract, continue to perform under the terms
of the Contract if Owner undertakes to complete or cause the
completion of the Project, provided that Owner compensates
Architect pursuant to the Contract for the services rendered by
Architect from and after the date on which Owner undertakes to
complete the Project, (c) Owner shall have the right to use all
plans, specifications and drawings for the Project prepared by or
for Architect or by and for any architects or engineers or
contractors for the Project, and the ideas, designs and concepts
contained therein, in connection with such completion without
payment of any additional fees or charges to Architect for such
use, and (d) during and/or upon completion of the Project,
Architect shall execute such certificates or other
acknowledgements as Owner may reasonably request to evidence
(including the Architect's Completion Certificate attached hereto
as Exhibit 2) (i) that Architect has prepared or approved certain
---------
plans and specifications for the Project, (ii) that such plans
and specifications have not been modified or amended except as
set forth therein, (iii) that the Project has been constructed to
date in accordance with such plans and specifications prepared by
or approved by Architect, without any material deviation and/or
(iv) the Architect's estimate of the time and cost necessary to
complete the project in accordance with such plans and
specifications and whether the Approved Budget (as defined in the
Development Agreement) is an accurate reflection of such costs,
whether the amounts remaining to be advanced from the Approved
Budget will be sufficient to complete the Project, and whether
the Project can be completed within the time period originally
estimated.
2. MAINTENANCE OF LICENSE. Architect agrees that it will be at
----------------------
all times during the performance of work on the Project a duly
licensed architect and engineer under the laws and regulations of
the state where the Project is located.
3. COMPLIANCE WITH LAWS. Architect shall comply, and shall
--------------------
report to Owner any failure known to Architect of Developer, the
Project of any person or entity furnishing materials or services
in connection with the construction of the Project to comply with
all applicable governmental laws, ordinances, regulations and
requirements relating to the construction of the Improvements.
4. NO PREVIOUS ASSIGNMENT. Architect hereby represents and
----------------------
warrants to Owner that Architect has not consented to any
previous assignment of (a) any contract between Developer and
Architect that relates to the Project or the construction of the
Improvements or (b) any interest of Architect or Developer in the
Contract, except in favor of Owner.
5. BINDING OBLIGATION. Architect hereby represents and
------------------
warrants to Owner that the Contract constitutes the valid and
binding obligation of the Architect and is enforceable in
accordance with its terms.
6. PERFORMANCE OF COVENANTS. Architect hereby represents and
------------------------
warrants to Owner that all covenants, conditions and agreements
of Architect contained in the Contract have been performed as
required therein except for those which are not due to be
preformed until after the date of this Agreement.
7. NOTICES.
-------
All notices and demands permitted or required under this
Agreement shall be in writing and shall be delivered personally,
by courier (including overnight courier service), by telecopy or
by certified or registered mail, return receipt requested,
postage prepaid. Notices delivered personally, by courier
service or by telecopy shall be effective upon delivery. Mailed
notices shall be effective upon the earlier of (a) three business
days after mailing or (b) actual receipt as evidenced by the
return receipt. The addresses of Owner and Architect for
purposes of this notice hereunder are as follows:
If to Owner:
CAPSTONE CAPITAL CORPORATION
1000 Urban Center Drive, Suite 630
Birmingham, Alabama 35242
Attention: Mr. John W. McRoberts
Telephone: (205) 967-2092
Telecopy: (205) 967-9066
If to Architect:
Architect and Associates, Ltd.
4170 South Boulevard, Suite B-5
Dallas, Texas 75202
Telephone: (214) ____________
Telecopy: (214) _____________
Either party hereto may change its address for purposes of
notice hereunder by notice to the other pursuant to this Section
7.
8. ASSIGNMENT. Architect hereby agrees and acknowledges that
----------
Owner may assign its rights under the Contract without the
consent of the Architect.
9. MISCELLANEOUS.
-------------
9.1 AMENDMENT.
---------
This Agreement may be amended only be a written instrument signed
by Owner and Architect.
9.2 COSTS OF ENFORCEMENT.
--------------------
In the event that either Owner or Architect files an action
against the other to interpret or enforce the terms of this
Agreement, the prevailing party in such action shall be entitled
to recover its reasonable attorney's fees and costs, whether or
not such actio is prosecuted to final judgement.
9.3 SUCCESSORS AND ASSIGNS.
----------------------
This Agreement shall inure to the benefit of the successors and
assigns of Owner and shall bind the successors, assigns, heirs
and personal representatives of Architect.
9.4 GOVERNING LAW.
-------------
This Agreement shall be governed by and construed under the laws
of the state where the Project is located, except to the extent
preempted by federal law, in which case, federal law shall
control.
ARCHITECT:
ARCHITECT AND ASSOCIATES, LTD.
By: __________________________
Name: ________________________
Title: _______________________
THE STATE OF ____________ )
COUNTY OF ______________ )
This foregoing instrument was acknowledged before me this
___ day of ______, 1996 by ______________________________,
_______ of Architect and Associates, Ltd. on behalf of the
corporation.
______________________________
Notary Public in and for the
State of _____________________
Name: ________________________
My Commission Expires: _______
<PAGE>
EXHIBIT 1
LEGAL DESCRIPTION
<PAGE>
EXHIBIT 2
ARCHITECT'S COMPLETION CERTIFICATE
STATE OF __________ )
)
COUNTY OF _________ )
TO: CAPSTONE CAPITAL CORPORATION
The undersigned, Architect and Associates, Ltd. (the
"Architect"), does hereby state to the best of their knowledge,
information and belief as follows:
(1) That it was retained by GRAND COURT LIFESTYLES, INC., a
Delaware corporation ("Developer") in connection with that
certain project consisting of an assisted and independent living
facility containing ________ gross square foot (________ Net
Rentable) and appurtenant improvements known as
________________________________ (the "Project") and located on
approximately ________ acres of land, in ________________ County,
Texas, as more particularly described in Exhibit A attached
---------
hereto and made part hereof by reference (the "Land") and, as
such, is Architect of record.
(2) That it prepared and/or coordinated the plans and
specifications identified in Exhibit B attached hereto and made a
---------
part hereof by reference (the "Plans and Specifications"), which
Plans and Specifications were used in connection with the
construction of the Project and copies of which have been
delivered to Owner.
(3) That, based upon periodic site inspections (a) the
construction of the improvements and the development of the
Project have been substantially completed in accordance with the
Plans and Specifications, including the installation of specified
fixed machinery and equipment, such as plumbing, heating,
ventilation, air-conditioning, systems and other building
facilities, (b) the Project and said machinery, equipment,
systems and facilities are in good working order and condition,
(c) all certificates of occupancy and other permits required by
applicable law prior to occupancy of the Project have been
secured, (d) the final inspection by the City of ________________
Building Department has been completed and the Project has been
approved by the ________________ Building Department for
occupancy, and (e) the only items remaining to be completed are
the punch list items set forth in the AIA Form Certificate of
Substantial Completion delivered herewith. The term
"substantially completed," as used herein, means that the Project
is sufficiently complete, in accordance with the Plans and
Specifications, so that the Project can be substantially occupied
and utilized for the use for which it is intended.
(4) That the undersigned is an architect duly licensed and in
good standing under the laws of the State of Texas.
(5) That, as of this date, the undersigned has no legal interest
in or to the Project or the Land upon which the Project is
constructed.
IN WITNESS WHEREOF, the undersigned has hereunto set its
hand and seal this _________ day of _______________________, 1996.
ARCHITECT AND ASSOCIATES, LTD.
By: __________________________
Name: ________________________
Title: _______________________
ATTEST:
___________________________ (Corporate seal)
ACKNOWLEDGEMENT
STATE OF ___________ )
)
COUNTY OF _________ )
The foregoing instrument was acknowledged before me this
_____ day of _______________, 1996, by __________________________
____, as ___________________________ of Architect and Associates,
Ltd. on behalf of the corporation.
______________________________
Notary Public in and for
The State of _________________
Name: ________________________
My Commission Expires: _______
<PAGE>
EXHIBIT G
NOT USED
<PAGE>
EXHIBIT H
CONTRACTOR'S CONSENT AND AGREEMENT
THIS CONTRACTOR'S CONSENT AND AGREEMENT ("Agreement"), dated
as of ________________________ ___, 1996, is executed by Acme
Construction Co., Inc. (the "Contractor") in connection with that
certain Development Agreement (the "Development Agreement") dated
________________________ ___, 1996, by and between GRAND COURT
LIFESTYLES, INC., a Delaware corporation ("Developer"), and
CAPSTONE CAPITAL CORPORATION ("Owner"), pursuant to which Owner
has agreed to make certain advances (the "Advances") to Developer
in a sufficient amount to finance the construction of an assisted
and independent living facility and appurtenant facilities (the
"Improvements") on real property situated in ________________
County, Texas, known as ________________________________, being
more particularly described in Exhibit A attached hereto and
---------
incorporated herein by this reference (the "Property").
1. CONTRACTOR'S REPRESENTATIONS:
----------------------------
Contractor warrants and represents to the Owner that the
following are true and correct:
(a) That Contractor has agreed to act as general
contractor and supply materials and perform labor in
connection with the construction of the Improvements on the
Property.
(b) That the entire agreement between Contractor and
Developer for the construction of the Improvements shall be
evidenced by an Agreement to be executed by Developer and
Contractor (hereinafter referred to as the "Construction
Contract") following the date hereof, in the form attached
hereto as Exhibit B and made a part hereof for all
---------
purposes.
(c) That the Construction Contract provides for a
fixed sum to be paid Contractor for the Construction of the
Improvements, which fixed sum is not to exceed
$________________.00 (hereinafter referred to as the
"Guaranteed Maximum Cost").
(d) That the Guaranteed Maximum cost (i) includes all
fees due or to become due Contractor for the completion of
the Improvements and the cost of all labor and materials
necessary to complete the same and (ii) is based on the
Specifications described in the Construction Contract.
(e) Upon execution by all parties thereto, the
Construction Contract shall constitute the valid and binding
agreement of Contractor, enforceable in accordance with its
terms, and Contractor has full authority under all state or
local laws and regulations to perform all of its obligations
under said Construction Contract.
2. CONTRACTOR'S AGREEMENTS:
-----------------------
Developer has advised Contractor that Developer will obtain the
Advances from Owner for, among other things, the construction of
the Improvements. Contractor hereby agrees to each and every one
of the following for the benefit of Owner and as an inducement to
Owner to make Advances to Developer for construction of the
Improvements:
(a) Contractor will (i) store all materials that are
pre-purchased under the Construction Contract at the
Property in a manner acceptable to Owner or in a warehouse
acceptable to Owner, (ii) verify that the Builder's Risk
Insurance Policy relating to the Improvements specifically
covers any materials so pre-purchased and (iii) execute any
and all documents Owner shall reasonably require to transfer
title to said pre-purchased materials to Owner.
(b) Contractor guarantees that if for any reason, by
virtue of Contractor's participation in the erection or
construction of said Improvements or that of any
subcontractor performing work or supplying materials covered
by the Construction Contract, a lien or liens is or are
filed against the Property or the Improvements, for
materials or labor, Contractor will immediately obtain a
settlement of such lien or liens and obtain and furnish
Developer and Owner a release thereof, or if it cannot
obtain such a release, within 30 days of the date of filing
of such lien, Contractor agrees to indemnify Developer and
Owner for any and all reasonable costs Developer or Owner
may incur in removing said lien or liens and provide
Developer and Owner with such security or assurances that
Developer and Owner may reasonably require.
(c) In the event of default by Developer under any
term, covenant or provision of the Construction Contract,
Contractor will give the Owner 30 days' prior written notice
of such default prior to Contractor's exercise of any of its
rights or remedies under such Construction Contract or at
law, and Owner shall have the right, but not the obligation,
during said 30-day period to cure such default. Only in the
event Owner fails to cure or cause to be cured any such
default during said 30-day period shall Contractor have the
right to terminate the Construction Contract. Contractor
will deliver to Owner a copy of all notices of termination
given by Contractor to Developer under the Construction
Contract simultaneously with the delivery of any such notice
of termination to Developer.
(d) In the event of default by Developer under the
Development Agreement or any of the documents relating to
the Advances, Contractor shall, at the request of Owner, its
successors or assigns, continue performance on Owner's, its
successors or assigns, behalf in accordance with the terms
of the Construction Contract, provided that Contractor shall
be paid all sums due or to become due it in accordance with
said Construction Contract for all work, labor and materials
rendered.
(e) In the event Contractor determines that any bill
in the amount of $25,000.00 or more for labor or materials
performed or furnished by others in connection with the
construction and equipping of the Improvements should not be
paid, Contractor shall notify Owner in writing of its
determination prior to the time Contractor exercises any
right under the Construction Contract not to pay said bill.
(f) Contractor will not amend or modify the
Construction Contract or enter into any Change Orders
without the prior written consent of Owner, which approval
shall not be unreasonably withheld or delayed, if such
amendment, modification or Change Order will result in the
occurrence of any one of the following:
(i) an increase or decrease in the contract price
under the Construction Contract by more than
$50,000.00, when added to all prior Change Orders; or
(ii) the change materially affects the structural
aspects of the Improvements.
In the event Contractor fails to secure such approval,
the Construction Contract shall, for the purposes of
Contractor's obligation to continue performance thereunder
for Owner's benefit, be deemed not to have been modified by
such Change Order or otherwise.
(g) In the event any of the Advances are disbursed by
Owner directly to Contractor, Contractor will receive any
such Advances and will hold the same as a trust fund for the
purposes of paying the costs of labor, equipment and
supplies used in constructing the Improvements on the
Property and Contractor will apply the same first to payment
of such costs then due and payable before using any part
thereof for any other purpose.
(h) The All Risk Builder's Risk Insurance required
under the Construction contract and any other casualty
insurance maintained on the Improvements (all of the
foregoing being hereinafter referred to as the "Casualty
Insurance") shall also name Owner as a loss payee. In case
of any damage to or loss of any of the Improvements by fire,
storm or other casualty, any Casualty Insurance proceeds
arising from said damage or loss will be disbursed to Owner.
Owner shall hold all such insurance proceeds or disburse the
same in accordance with the terms and conditions of the
Development Agreement.
(i) Upon Owner's request, Contractor shall furnish to
the Owner a current list of all persons or firms with whom
Contractor has entered into sub-contracts or other
agreements relating to the performance of work or furnishing
of materials in connection with the Improvements, together
with a statement as to the status of each of such sub-
contracts or agreements and the respective amounts, if any,
owed by Contractor thereunder.
(j) Contractor further agrees to (i) execute such
affidavits and certificates as Owner shall reasonably
require to further evidence the agreements herein contained,
(ii) on request from Owner, furnish Owner with copies of
such information as the Developer is entitled to receive
under the Construction Contract and (iii) cooperate with
Owner's representative in its inspection of the progress of
construction of the Improvements.
(k) The relationship of Owner to Developer is one of a
creditor to a debtor and Owner is not a joint venturer or
partner of Developer.
(l) Contractor further agrees that nothing herein
shall impose upon Owner any obligation for payment or
performance in favor of Contractor unless Owner notifies
Contractor in writing after a default by Developer under the
Documents that (i) Owner has elected to assert the
Developer's rights under the Construction Contract and (ii)
Owner agrees to pay Contractor the sums due Contractor under
the terms of the Construction Contract.
(m) Contractor has executed this Agreement for the
purpose of inducing Owner to advance sums to Developer under
the above described Development Agreement and with full
knowledge and intent that Owner shall rely upon the
representations, warranties and agreements herein contained
when making advances to Developer, and that but for this
instrument and the representations, warranties and
agreements herein contained, Owner would not take such
actions.
3. DEVELOPER'S CONSENT.
-------------------
Developer has joined herein to evidence its consent to all the
agreements of Contractor contained in this Agreement.
EXECUTED this the ______ day of _______________________,
1996.
CONTRACTOR:
ACME CONSTRUCTION CO., INC.
By: __________________________
Name: ________________________
Title: _______________________
DEVELOPER:
GRAND COURT LIFESTYLES, INC.
a Delaware corporation
By____________________________
Its___________________________
ATTEST:
___________________________ (Corporate seal)
ACKNOWLEDGEMENT
STATE OF ___________ )
)
COUNTY OF _________ )
The foregoing instrument was acknowledged before me this
_____ day of _______________ , 1996, by _________________________
_____, as _______________________________ of Acme Construction
Co., Inc., on behalf of the corporation.
______________________________
Notary Public in and for
The State of _________________
Name: ________________________
My Commission Expires: _______
STATE OF __________ )
)
COUNTY OF__________ )
The foregoing instrument was acknowledged before me this
_____ day of _______________, 1996, by ________________, as _____
__________ of GRAND COURT LIFESTYLES, INC., on behalf of the
corporation.
______________________________
Notary Public in and for
The State of _________________
Name: ________________________
My Commission Expires: _______
<PAGE>
EXHIBIT A
LEGAL DESCRIPION
<PAGE>
EXHIBIT B
CONSTRUCTION CONTRACT
<PAGE>
EXHIBIT I
ENVIRONMENTAL INDEMNITY AGREEMENT
This Environmental Indemnity Agreement is made and entered
into effective for all purposes as of ________________________
___, 1996, by GRAND COURT LIFESTYLES, INC., a Delaware
corporation ("Indemnitor"), to and for the benefit of CAPSTONE
CAPITAL CORPORATION a Maryland corporation ("Owner").
RECITALS
--------
A. On the date of this Agreement the Owner has executed a
Development Agreement with Indemnitor (the "Development
Agreement") pursuant to the terms of which Indemnitor has agreed
to construct certain improvements (the "Improvements") and Owner
has agreed to fund certain costs of constructing such
Improvements with respect to certain real property located in
________________ County, ________________, described on Exhibit A
---------
attached hereto (the "Property").
B. The Owner has required the execution and delivery of
this Agreement as a condition precedent to the execution of the
Development Agreement. The Owner would not be willing to enter
into the Development Agreement in the absence of the execution
and delivery by Indemnitor of this Agreement.
AGREEMENT
---------
NOW, THEREFORE,Indemnitor, as an inducement to the Owner to
enter into the Development Agreement, hereby covenants and agrees
to and for the benefit of the Owner as follows:
1. HAZARDOUS MATERIAL.
------------------
As used in this Agreement, the term "Hazardous Materials" shall
mean any flammable explosives, radioactive materials, hazardous
wastes, hazardous materials, hazardous or toxic substances, or
related materials as defined in the Comprehensive Environmental
Response, compensation and Liability Act of 1980, as amended (42
U.S.C. Section 9.601 et. seq.), the Hazardous Materials
Transportation Act, as amended (49 U.S.C. Section 18.01 et.
sec.), the Resource Conservation and Recovery Act, as amended (42
U.S.C. Section 69.01 et. sec.), the Atomic Energy Act, and in
the regulations adopted and publications promulgated pursuant
thereto, and all friable asbestos, petroleum derivatives,
polychlorinated biphenyls, and materials defined as hazardous
materials under any federal, state or local laws, ordinances,
codes, rules, orders, regulations or policies governing the use
storage, treatment, transportation, manufacture, refinement,
handling, production or disposal thereof.
2. REPRESENTATION.
--------------
Indemnitor warrants and represents to Owner that based on the
Phase I environmental report dated ________________ ___, 1996,
prepared by ________________________, it has no knowledge of (a)
the presence of any Hazardous Materials on the Property; or (b)
any material spills, releases, discharges or disposal of
Hazardous Materials that have occurred or are presently occurring
on the Property as a result of any construction on or operation
and use of the Property. In connection with the operation and
use of the Property, Indemnitor warrants and represents that, as
of the date of this Agreement, it has no knowledge, based on such
environmental report, of any failure to comply in all material
respects with all applicable law, state and federal environmental
laws, regulations, ordinances and administrative and judicial
orders relating to the generation, recycling, reuse, sale,
storage, handling, transport and disposal of any Hazardous
Materials. Indemnitor represents and warrants to Owner that
Indemnitor by obtaining such environmental report has
investigated the present and past uses of the Property and have
made inquiry of the appropriate governmental agencies and offices
having jurisdiction over the Property and the laws regulating the
environment, as to whether the Property or any property in the
immediate vicinity of the Property is or has been the site of
storage of or contamination by any Hazardous Materials.
3. COVENANT.
--------
Indemnitor covenants and agrees not to cause or permit the
presence, use, generation, release, discharge, storage, disposal
or transportation of any Hazardous Materials on, under, in,
about, to or from the Property.
4. INDEMNIFICATION.
---------------
Indemnitor shall exonerate, indemnify, pay and protect, defend
(with counsel approved by the Owner) and save the Owner, and the
directors, trustees, beneficiaries, officers, shareholders,
employees and agents of the Owner (collectively, the "Related
Parties"), harmless from and against any claims (including,
without limitation, third party claims for personal injury or
real personal property damage), actions, administrative
proceedings (including informal proceedings), judgments, damages,
punitive damages, penalties, fines, costs, taxes, assessments,
liabilities (including, without limitation, sums paid in
settlements of claims, which settlements have been approved in
writing by Indemnitor), interest or losses, including reasonable
attorney's fees and expenses (including, without limitation, any
such reasonable fees and expenses incurred in enforcing this
Agreement or collecting any sums due hereunder), consultant fees,
and expert fees, together with all other costs and expenses of
any kind or nature (collectively, the "Costs") that arise
directly or indirectly in connection with the presence, suspected
presence, release or suspected release of any Hazardous Materials
in or into the air, soil, ground water, surface water or
improvements at, on, about, under or within the Property, or any
portion thereof, or elsewhere in connection with (i) the
activities of Indemnitor, its employees, agents or contractors,
(ii) the transportation of Hazardous Materials to and from the
Property, or (iii) the construction and development of the
Improvements (all of the foregoing collectively the "Indemnified
Claims"). The indemnification provided in this paragraph shall
specifically apply to and include claims or actions brought by or
on behalf of tenants, patients or employees of Indemnitor;
Indemnitor hereby expressly waives (with respect to any claims of
the Owner arising under this Agreement) any immunity to which
Indemnitor may otherwise be entitled under any industrial or
worker's compensation laws. In the event the Owner or any of its
Related Parties shall suffer or incur any such costs, Indemnitor
shall pay to the Owner or such Related Party the total of all
such Costs suffered or incurred by the Owner or such Related
Party within ten days after demand therefor. Without limiting
the generality of the foregoing, the indemnification provided by
this paragraph 4 shall specifically cover costs, including,
without limitation, capital, operating and maintenance costs,
incurred in connection with any investigation or monitoring of
site conditions, any clean-up, containment, remedial, removal or
restoration work required or performed by any federal, state or
local governmental agency or political subdivision ("Governmental
Agency") or performed by any non-governmental entity or person as
required by any Governmental Agency because of the presence,
suspected presence, release or suspected release of any Hazardous
Materials in or into the air, soil, groundwater, surface water or
improvements at, on, under or within the Property (or any portion
thereof), or elsewhere in connection with the transportation of
Hazardous Materials to or from the Property, and any claims of
third parties for loss or damage due to such Hazardous Materials
or the construction and development of the Improvements.
Notwithstanding anything contained herein to the contrary,
Indemnitor shall not be liable for the negligence or willful
misconduct of Owner.
In case any Indemnified Claim is brought or threatened by
any third party against the Owner or any of its Related Persons
(collectively an "Indemnitee") hereunder such Indemnitee shall
promptly notify the Indemnitor in writing and the Indemnitor
shall assume the defense thereof, including the employment of
counsel approved in writing by the Indemnitee, which approval
shall not be unreasonably withheld. In addition, in case any
Indemnitee shall become aware of any facts which might result in
any such Indemnified Claim, such Indemnitee shall promptly notify
the Indemnitor thereof in writing, who shall have the right to
take such action as it may deem appropriate to resolve such
matter. An Indemnitee shall have the right to employ separate
counsel in any such third party action, but the fees and expenses
of such counsel shall be at the expense of such Indemnitee unless
the employment of such counsel has been separately authorized in
writing by the Indemnitor or the Indemnitor has failed to employ
counsel. An Indemnitee shall cooperate fully in the defense of
any such third party claim, demand and cause of action and shall
engage in no conduct prejudicial to the defense thereof. The
Indemnitor shall not be liable for any settlement of any such
third party claim, demand or cause of action effected without its
consent, but if settled with the consent of the Indemnitor or if
there shall be a final judgment for the plaintiff in any such
third party action, the Indemnitor shall indemnify and hold
harmless the Indemnitee from and against any loss or liability by
reason of such settlement or judgment.
5. REMEDIAL WORK.
-------------
In the event any investigation or monitoring of site conditions
or any clean-up, containment, restoration, removal or other
remedial work ("Remedial Work") is required (a) under any
applicable federal, state or local law or regulation or (b) by
any judicial, arbitral, or administrative order or (c) in order
to comply with any agreements affecting the Property or (d) to
maintain the Property in a standard of environmental condition
which prevents the release of any Hazardous Materials to adjacent
property and otherwise is consistent with the prudent ownership
of property of the character of the Property or (e) as a result
of the existence of Hazardous Materials on the Property during or
prior to Indemnitor's final completion of the Improvements and
performance of all obligations of Indemnitor under the
Development Agreement or (f) as a result of any activities on the
Property during or prior to Indemnitor's final completion of the
Improvements and performance of all obligations of Indemnitor
under the Development Agreement which directly or indirectly
result in the Property becoming contaminated with Hazardous
Materials, Indemnitor shall perform or cause to be performed such
Remedial Work; provided that Indemnitor may withhold commencement
of such Remedial Work pending resolution of any good faith
contest regarding the application, interpretation or validity of
any law, regulation, order or agreement, subject to the
requirements of Paragraph 6 set forth below. All Remedial Work
shall be conducted (i) in a diligent and timely fashion by a
licensed environmental engineer, (ii) pursuant to a detailed
written plan for the Remedial Work approved by any Governmental
Agency with a legal or contractual right to grant such approval,
(iii) with such insurance coverage pertaining to liabilities
arising out of the Remedial Work as is then customarily
maintained with respect to such activities, and (iv) only
following receipt of all required permits, licenses or approvals.
In addition, Indemnitor shall submit to the Owner promptly upon
receipt or preparation, copies of any and all reports, studies,
analysis, correspondence, governmental comments or approvals,
proposed removal or other Remedial Work contracts and similar
information prepared or received by Indemnitor in connection with
any Remedial Work or Hazardous Materials relating to the
Property. All costs and expenses of such Remedial Work shall be
paid by Indemnitor, including, without limitation, the charges of
the Remedial Work contractors and the consulting environmental
engineer, any taxes or penalties assessed in connection with the
Remedial Work and the Owner's reasonable fees and costs incurred
in connection with monitoring or reviewing of such Remedial Work.
In the event Indemnitor should fail to commence or cause to be
commenced such Remedial Work, in a timely fashion, or fail
diligently to prosecute to completion, such Remedial Work, the
Owner (following ten (10) days written notice to Indemnitor) may,
but shall not be required to, cause such Remedial Work to be
performed, and all costs and expenses thereof, or incurred in
connection therewith shall be Costs within the meaning of
paragraph 4 above. All such costs shall be due and payable by
Indemnitor within ten days after the Owner's demand therefor.
6. PERMITTED CONTESTS.
------------------
Notwithstanding any provision of this Agreement to the contrary,
Indemnitor may contest by appropriate action any Remedial Work
requirement imposed by any Governmental Agency, and Owner shall
have no right to perform such required Remedial Work on
Indemnitor's behalf during the pendency of such contest, provided
that (a) no "Event of Default" has occurred and is continuing
under the Development Agreement or under any document or
instrument executed in connection therewith (the "Documents") (b)
Indemnitor has given the Owner written notice that Indemnitor is
contesting or shall contest and Indemnitor does in fact contest
the application, interpretation or validity of the law,
regulation, order or agreement pertaining to the Remedial Work by
appropriate legal or administrative proceedings conducted in good
faith and with due diligence and dispatch (c) such contest shall
not subject the Owner or any of the Owner's Related Parties or
any assignee of all or any portion of the Owner's interest in the
Property to civil or criminal liability and does not jeopardize
any such party's interest in the Property and (d) Indemnitor
shall give such security or assurances as may be reasonably
required by the Owner to ensure ultimate compliance with all
legal or contractual requirements pertaining to the Remedial Work
(and payment of all costs, expenses, interest and penalties in
connection therewith )and to prevent any sale, forfeiture or loss
by reason of nonpayment or noncompliance.
7. REPORTS AND CLAIMS.
------------------
Indemnitor shall deliver to the Owner copies of any reports,
analyses, correspondence, notices, licenses, approvals, orders or
other written materials relating to the environmental condition
of the Property promptly upon receipt, completion or delivery
thereof. Indemnitor shall give notice to the Owner of any claim,
action, administrative proceeding (including, without limitation,
informal proceedings) or other demand by any governmental agency
or other third party involving Costs or Remedial Action at the
time such claim or other demand first becomes known to
Indemnitor. Receipt of any such notice shall not be deemed to
create any obligation on the Owner to defend or otherwise respond
to any claim or demand. All notices, approvals, consents,
requests, and demands upon the respective parties hereto shall be
in writing and shall be delivered by telephonic facsimile,
overnight air courier, personal delivery or registered or
certified U.S. Mail with return receipt requested, postage paid,
to the appropriate party at its address as follows:
To the Owner:
CAPSTONE CAPITAL CORPORATION
1000 Urban Center Drive, Suite 630
Birmingham, Alabama 35242
Attention: Mr. John W. McRoberts
To Indemnitor:
GRAND COURT LIFESTYLES, INC.
%GRAND COURT LIFESTYLES, INC.
One Executive Drive
Fort Lee, New Jersey 07024
Attention: Mr. Paul Jawin
Telephone: (201) 947-7322
Telecopy: (201) 947-6663
Addresses for notice may be changed from time to time by
written notice to all other parties. Any communication given by
mail will be effective (i) upon the earlier of (a) three business
days following deposit in a post office or other official
depository under the care and custody of the United States Postal
Service or (b) actual receipt, as indicated by the return
receipt; (ii) if given by telephone facsimile, when sent; and
(iii) if given by personal delivery or by overnight air courier,
when delivered to the appropriate address set forth.
8. DEFENSE OF CLAIMS.
-----------------
If for any reason, any claim, action, notice, administrative
proceeding (including, without limitation, informal proceedings)
or other demand is made by any Governmental Agency or other third
party which implicate Costs or Remedial Work, Indemnitor shall
cooperate with the Owner in any defense or other appropriate
response to any such claim or demand. Indemnitor's duty to
cooperate and right to participate in the defense or response to
any such claim or demand shall not be deemed to limit or
otherwise modify Indemnitor's obligations under this Agreement.
The Owner shall give notice to Indemnitor of any claim or demand
governed by this paragraph 8 at the time such claim or other
demand first becomes known to the Owner.
9. SUBROGATION OF INDEMNITY RIGHTS.
-------------------------------
If Indemnitor fails to fully perform its obligations under
paragraphs 4 and 5 above, the Owner shall be subrogated to any
rights or claims Indemnitor may have against any present, future
or former owners, tenants or other occupants or users of the
Property, any portion thereof, or any adjacent or proximate
properties, relating to the recovery of Costs or the performance
of Remedial Work.
10. ASSIGNMENT BY OWNER.
-------------------
No consent by Indemnitor shall be required for any assignment or
reassignment of the rights of the Owner under this Agreement.
11. MERGER, CONSOLIDATION OR SALE OF ASSETS.
---------------------------------------
In the event Indemnitor is dissolved, liquidated or terminated or
all or substantially all the assets of Indemnitor are sold or
otherwise transferred to one or more persons or other entities,
the surviving entity or transferee of assets, as the case may be,
shall deliver to the Owner an acknowledged instrument in
recordable form assuming all obligations, covenants and
responsibilities of Indemnitor under this Agreement.
12. INDEPENDENT OBLIGATION'S SURVIVAL.
---------------------------------
The obligations of Indemnitor under this Agreement shall survive
the completion of the obligations of Indemnitor under the
Development Agreement. The obligations of Indemnitor under this
Agreement are separate and distinct from the obligations of
Indemnitor under the Documents. This Agreement may be enforced
by the Owner without regard to or affecting any rights and
remedies the Owner may have against Indemnitor under the
Documents.
13. DEFAULT INTEREST.
----------------
In addition to all other rights and remedies of the Owner against
Indemnitor as provided herein, or under applicable law,
Indemnitor shall pay to the Owner, immediately upon demand
therefor, Default Interest (as defined below) on any Costs and
other payments required to be paid by Indemnitor to the Owner
under this Agreement which are not paid within ten days after
demand therefor. Default Interest shall be paid by Indemnitor
from the date such payment becomes delinquent through and
including the date of payment of such delinquent sums. "Default
Interest" shall accrue at a per annum interest rate equal to the
greater of (i) the Base Rate (as defined in the Development
Agreement) or (ii) a rate which is four points above the Prime
Rate (as defined in the Development Agreement).
14. MISCELLANEOUS.
-------------
If there shall be more that one Indemnitor hereunder, or pursuant
to any other indemnification of Owner relating to Hazardous
Materials arising out of or in connection with the Development
Agreement or the Documents ("Other Indemnitor"), each Indemnitor
and Other Indemnitor agree that (a) the obligations of the
Indemnitor hereunder, and each Other Indemnitor, are joint and
several, (b) a release of any one or more Indemnitors or Other
Indemnitors or any limitation of this Agreement in favor of or
for the benefit of one or more Indemnitors or Other Indemnitors
shall not in any way be deemed a release of or limitation in
favor of or for the benefit of any Indemnitor or Other Indemnitor
not so released, and (c) a separate action hereunder may be
brought and prosecuted against any or all Indemnitors or Other
Indemnitors. If any term of this Agreement or any application
thereof shall be invalid, illegal or unenforceable, the remainder
of this Agreement and any other application of such term shall
not be affected thereby. No delay or omission in exercising any
right hereunder shall operate as a waiver of such right or any
other right. this Agreement shall be binding upon, inure to the
benefit of and be enforceable by Indemnitor and the Owner, and
their respective successors and assigns, including (without
limitation) any assignee or purchaser of all or any portion of
the Owner's interest in (i) the Documents, or (ii) the Property.
This Agreement shall be governed and construed in accordance with
the laws of the State of Alabama.
IN WITNESS WHEREOF, Indemnitor has caused this Agreement to
be executed as of the day and year first written above.
GRAND COURT LIFESTYLES, INC.
a Delaware corporation
By____________________________
Its___________________________
<PAGE>
EXHIBIT A
LEGAL DESCRIPTION
<PAGE>
EXHIBIT J
ASSIGNMENT OF CONTRACTS
THIS ASSIGNMENT OF CONTRACTS ("Assignment"), dated as of
________________________ ___, 1996, is made by GRAND COURT
LIFESTYLES, INC., a Delaware corporation ("Developer"), in favor
of CAPSTONE CAPITAL CORPORATION, a Maryland corporation
("Owner"), in connection with and pursuant to the terms of that
certain Development Agreement of even date herewith between
Developer and Owner. Capitalized terms used herein and not
otherwise defined herein shall have the meanings set forth for
them in the Development Agreement.
1. Assignment.
----------
Developer hereby assigns and transfers, to the extent assignable
and transferrable, to Owner all of its right, title and interest
in and to:
(a) all purchase, construction, development, easement,
property rights, service, supply, management, maintenance,
landscaping, gardening, parking, engineering, consulting and
architectural contracts and agreements to which Developer is
a party, or under which Developer has an interest, and all
other similar contracts and agreements to which Developer is
a party, or under which Developer has an interest, relating
to the Project and the Property (excluding specifically the
Development Agreement of even date herewith between
Developer and Owner) which includes that certain real
property described in Exhibit A attached hereto and
---------
incorporated herein by this reference, whomsoever the
parties are to such contracts and agreements and whether
such contracts and agreements are currently in existence or
are subsequently entered into, including, without
limitation, the contracts described in Addendum 1 attached
----------
hereto and incorporated herein by this reference, if any,
together with all amendments, modifications and supplements
to any of the contracts and agreements described in this
subsection (a) and any collateral for any third party's
performance under any of the contracts and agreements
described in this subsection (a);
(b) all plans, specifications, surveys, drawings, and
other technical descriptions of whatever nature now or
hereafter existing which relate to the development,
construction, reconstruction, restoration, decoration,
repair or replacement of the Project, including without
limitation the Plans and specifications for any on-site and
off-site improvements to be constructed as part of the
Project, including without limitation those prepared by
Architect and Associates, Ltd. and all amendments,
modifications and supplements to any of the instruments
described in this subsection (b) (collectively, the
"Plans"); and
(c) all construction bonds, completion bonds or other
surety for the Project, and all amendments, modifications
and supplements to any of the instruments described in this
subsection (c).
All of the writings described in subsections (a), (b), and
(c) above are sometimes herein referred to collectively as
the "Contracts."
2. Representations and Warranties.
------------------------------
Developer represents and warrants that (a) it is the true owner
of the interest under the Contracts which it assigns and
transfers herein, (b) it has not assigned or granted a security
interest in any of the Contracts to any Person other than Owner,
(c) its interest in each of the Contracts is not subject to any
claims, set offs, encumbrances or deductions, (d) the Contracts
have not been amended except as disclosed to Owner, (e) it is not
in default under the terms of any Contract, (f) all covenants,
conditions and agreements have been performed as required by the
Contracts by all parties thereto, except those which are not due
to be performed until after the date of this Agreement, and (g)
Addendum 1 sets forth a true, correct and complete list of all
----------
material Contracts which are in effect as of the date hereof.
3. No Assumption By Owner and Developer's Covenants. Neither
------------------------------------------------
this Assignment nor any action or actions on the part of Owner
shall constitute an assumption by Owner of any obligations of
Developer under the Contracts, and Developer shall continue to be
liable for all obligations thereunder. Developer hereby agrees
to punctually perform any and all obligations it may have under
the Contracts, to take such steps as may be necessary or
appropriate to secure performance by all other parties of their
obligations under the Contracts and not to amend, or terminate
with or without cause, any of the Contracts, without the express
prior written consent of Owner. Owner may, at its option, but
shall not be obligated to, perform or discharge any obligation of
Developer under any of the Contracts, at Developer's expense, in
the event that Developer fails to do so. Developer agrees to
indemnify and hold the Owner harmless against and from any loss,
cost liability or expense (including without limitation all
attorney's and accountants' fees and expenses, court costs and
investigation expense) resulting from any failure of Developer
to perform its obligations under the Contracts.
4. Use of Plans. Owner may use the Plans for any purpose
------------
relating to the Project, including, without limitation,
inspections of construction and the completion of the Project and
for no other purpose. For the purpose of completing,
maintaining, restoring and otherwise dealing with the Project
subject to the same sole purpose limitation, Owner may reassign
its right, title and interest in the Plans to any persons or
entities succeeding to the Owner's interest in the Project in
Owner's sole discretion without any requirements for the consent
of Developer, and any such reassignment shall be valid and
binding upon Developer as fully as if Developer had expressly
approved the same.
5. No Approval of Plans. Owner's acceptance of this Assignment
--------------------
shall not constitute approval of the Plans by Owner. Owner has
no liability or obligation whatsoever in connection with the
Plans and no responsibility for the adequacy thereof or for the
construction and completion of the Project. Owner has the right,
but not the duty to inspect the Improvements, and if Owner should
inspect the Improvements, Owner shall have no liability or
obligation to Developer arising out of such inspection. No such
inspection nor any failure by Owner to make objection after any
such inspection shall constitute a representation by Owner that
the Improvements are in accordance with the Plans or constitute a
waiver of the Owner's right thereafter to insist that the
Improvements be constructed in strict accordance with the Plans.
6. Benefits Conditionally Retained by Developer. Owner hereby
--------------------------------------------
grants Developer the right to continue to receive the benefits
of, and exercise the rights under, the Contracts unless and until
an Event of Default occurs, in which event such rights may be
revoked at any time during the continuance of any Default at the
option of Owner.
7. Action By Owner Following Default. Owner shall have the
---------------------------------
right (but shall have no obligation) at any time following the
occurrence of an Event of Default (but shall have no obligation)
remaining uncured without notice and without taking possession of
the Property to take in its name or in the name or Developer or
otherwise, such action as Owner may at any time or from time to
time determine to be necessary to cure any default under the
Contracts or to protect or exercise the rights of Developer or
Owner thereunder, and may otherwise exercise any other rights or
remedies Owner has under the Development Agreement. Owner shall
incur no liability if any action taken by it or on its behalf
pursuant to this Assignment shall prove to be in whole or in part
inadequate or invalid, unless due to Owner's gross negligence or
willful misconduct; and Developer agrees to indemnify and hold
Owner free and harmless from and against any loss, costs,
liability or expense (including but not limited to reasonable
attorney's and accountants' fees and expenses, court costs and
investigation expenses) in connection with its actions hereunder,
unless due to Owner's negligence or willful misconduct.
8. Power of Attorney. Developer hereby irrevocably constitutes
-----------------
and appoints Owner its true and lawful agent and attorney-in-
fact, with, following the occurrence of an Event of Default under
the Documents, full power of substitution, to demand, receive and
enforce all rights of Developer under the Contracts, to modify,
supplement and terminate the Contracts, to give appropriate
releases, receipts for or on behalf of Developer in connection
with the Contracts, in the name, place and stead of Developer or
in Owner's name,with the same force and effect as Developer could
do if this Assignment had not been made. Developer authorizes
any third party to exclusively rely on the certificate of an
officer of the Owner for the establishment of such an Event of
Default and hereby waives and releases any claim Developer may
have against such third party for such reliance. Developer
hereby agrees to deliver to Owner, upon Owner's written demand,
originals of all of the Contracts and such other instruments and
documents as Owner may reasonably require in order to permit
Owner's succession to the right, title and interest of Developer
in and to the Contracts as provided herein. It is hereby
recognized that the power of attorney herein granted is coupled
with an interest and is irrevocable.
9. Binding Effect. This Assignment shall be binding upon
--------------
Developer and Developer's heirs, executors, administrators, legal
representatives, successors and assigns, and shall inure to the
benefit of the Owner and its successors and assigns. The Owner
may reassign its right, title and interest in and to the
Contracts in whole or in part, to any person or entities
succeeding to Owner's interest in the Property, in the Owner's
sole discretion without any requirement for the Developer's
consent, and any such reassignment shall be valid and binding
upon Developer as fully as if Developer has expressly approved
the same.
10. Governing Law. This Assignment shall be governed by and
-------------
construed under the laws of the state where the Project is
located, except to the extent preempted by federal law, in which
case federal law shall control.
DEVELOPER:
GRAND COURT LIFESTYLES, INC.
a Delaware corporation
By____________________________
Its___________________________
<PAGE>
EXHIBIT A
LEGAL DESCRIPTION
<PAGE>
EXHIBIT C
FORM OF
LEASE AGREEMENT
LEASE AGREEMENT
CAPSTONE CAPITAL CORPORATION
a Maryland Corporation
("LESSOR")
AND
GRAND COURT LIFESTYLES, INC.
a Delaware Corporation
("LESSEE")
____________________ ___, 1996
FOR THE LEASE OF AN ASSISTED AND
INDEPENDENT LIVING FACILITY LOCATED AT
________________________________
________________________________
<PAGE>
TABLE OF CONTENTS
ARTICLE I LEASED PROPERTY; TERM . . . . . . . . . . . . . 1
---------------------
ARTICLE II RENT . . . . . . . . . . . . . . . . . . . . . . 2
----
2.1 MINIMUM RENT AND ADJUSTMENTS TO MINIMUM RENT . . 2
2.2 CALCULATION OF INCREASES TO MINIMUM RENT . . . . 3
2.3 ADDITIONAL CHARGES. . . . . . . . . . . . . . . 3
2.4 NET LEASE . . . . . . . . . . . . . . . . . . . 4
ARTICLE III IMPOSITIONS . . . . . . . . . . . . . . . . . . 4
-----------
3.1 PAYMENT OF IMPOSITIONS . . . . . . . . . . . . . 4
3.2 PRORATION OF IMPOSITIONS . . . . . . . . . . . . 5
3.3 UTILITY CHARGES . . . . . . . . . . . . . . . . 5
3.4 INSURANCE PREMIUMS . . . . . . . . . . . . . . . 5
ARTICLE IV NO TERMINATION . . . . . . . . . . . . . . . . . 5
--------------
ARTICLE V OWNERSHIP OF LEASED PROPERTY . . . . . . . . . 6
----------------------------
5.1 OWNERSHIP OF THE PROPERTY . . . . . . . . . . . 6
5.2 PERSONAL PROPERTY . . . . . . . . . . . . . . . 6
ARTICLE VI CONDITION AND USE OF LEASED PROPERTY . . . . . . 6
------------------------------------
6.1 CONDITION OF THE LEASED PROPERTY . . . . . . . . 6
6.2 USE OF THE LEASED PROPERTY . . . . . . . . . . . 7
6.3 MANAGEMENT OF FACILITY . . . . . . . . . . . . . 7
6.4 LESSOR TO GRANT EASEMENTS . . . . . . . . . . . 8
ARTICLE VII LEGAL, INSURANCE AND FINANCIAL REQUIREMENTS . . 8
-------------------------------------------
7.1 COMPLIANCE WITH LEGAL AND INSURANCE REQUIREMENTS 8
7.2 LEGAL REQUIREMENT COVENANTS . . . . . . . . . . 8
ARTICLE VIII REPAIRS; RESTRICTIONS AND ANNUAL INSPECTIONS . 9
--------------------------------------------
8.1 MAINTENANCE AND REPAIR . . . . . . . . . . . . . 9
8.2 ENCROACHMENTS; RESTRICTIONS . . . . . . . . . . 10
8.3 ANNUAL INSPECTIONS . . . . . . . . . . . . . . . 10
ARTICLE IX CAPITAL ADDITIONS . . . . . . . . . . . . . . . 11
-----------------
9.1 CONSTRUCTION OF CAPITAL ADDITIONS TO THE LEASED
PROPERTY . . . . . . . . . . . . . . . . . . . . 11
9.2 CAPITAL ADDITIONS FINANCED BY LESSEE . . . . . . 11
9.3 CAPITAL ADDITIONS FINANCED BY LESSOR . . . . . . 12
9.4 NON-CAPITAL ADDITIONS . . . . . . . . . . . . . 14
9.5 SALVAGE . . . . . . . . . . . . . . . . . . . . 14
ARTICLE X LIENS . . . . . . . . . . . . . . . . . . . . . 14
-----
ARTICLE XI PERMITTED CONTESTS . . . . . . . . . . . . . . . 15
------------------
ARTICLE XII INSURANCE . . . . . . . . . . . . . . . . . . . 15
---------
12.1 GENERAL INSURANCE REQUIREMENTS . . . . . . . . . 15
12.2 REPLACEMENT COST . . . . . . . . . . . . . . . . 17
12.3 ADDITIONAL INSURANCE . . . . . . . . . . . . . . 17
12.4 WAIVER OF SUBROGATION . . . . . . . . . . . . . 17
12.5 FORM OF INSURANCE . . . . . . . . . . . . . . . 17
12.6 CHANGE IN LIMITS . . . . . . . . . . . . . . . . 18
12.7 BLANKET POLICY . . . . . . . . . . . . . . . . . 18
12.8 NO SEPARATE INSURANCE . . . . . . . . . . . . . 18
12.9 INSURANCE FOR CONTRACTORS . . . . . . . . . . . 18
ARTICLE XIII FIRE AND CASUALTY . . . . . . . . . . . . . . 19
-----------------
13.1 INSURANCE PROCEEDS . . . . . . . . . . . . . . . 19
13.2 RECONSTRUCTION IN THE EVENT OF DAMAGE OR DESTRUCTION
COVERED BY INSURANCE . . . . . . . . . . . . . . 19
13.3 RECONSTRUCTION IN THE EVENT OF DAMAGE OR DESTRUCTION
NOT COVERED BY INSURANCE . . . . . . . . . . . . 20
13.4 LESSEE'S PROPERTY . . . . . . . . . . . . . . . 20
13.5 RESTORATION OF LESSEE'S PROPERTY . . . . . . . . 20
13.6 NO ABATEMENT OF THE RENT . . . . . . . . . . . . 20
13.7 DAMAGE NEAR END OF TERM . . . . . . . . . . . . 20
13.8 PURCHASE . . . . . . . . . . . . . . . . . . . . 21
13.9 WAIVER . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE XIV CONDEMNATION . . . . . . . . . . . . . . . . . . 21
------------
14.1 PARTIES' RIGHTS AND OBLIGATIONS . . . . . . . . 21
14.2 TOTAL TAKING . . . . . . . . . . . . . . . . . . 21
14.3 PARTIAL TAKING . . . . . . . . . . . . . . . . . 21
14.4 RESTORATION . . . . . . . . . . . . . . . . . . 22
14.5 AWARD DISTRIBUTION . . . . . . . . . . . . . . . 22
14.6 TEMPORARY TAKING . . . . . . . . . . . . . . . . 22
14.7 PURCHASE OR SUBSTITUTION . . . . . . . . . . . . 22
ARTICLE XV DEFAULT . . . . . . . . . . . . . . . . . . . . 22
-------
15.1 EVENTS OF DEFAULT . . . . . . . . . . . . . . . 22
15.2 REMEDIES . . . . . . . . . . . . . . . . . . . . 24
15.4 PAYMENT TO REDUCE MINIMUM RENT . . . . . . . . . 26
15.5 WAIVER . . . . . . . . . . . . . . . . . . . . . 26
15.6 APPLICATION OF FUNDS . . . . . . . . . . . . . . 26
15.7 NOTICES BY LESSOR . . . . . . . . . . . . . . . 26
ARTICLE XVI LESSOR'S RIGHT TO CURE . . . . . . . . . . . . . 26
----------------------
ARTICLE XVII PURCHASE OF THE LEASED PROPERTY . . . . . . . 26
-------------------------------
ARTICLE XVIII HOLDING OVER . . . . . . . . . . . . . . . . . 27
------------
ARTICLE XIX OPTION TO PURCHASE; ABANDONMENT . . . . . . . . 28
-------------------------------
19.1 OPTION TO PURCHASE . . . . . . . . . . . . . . . 28
19.2 DISCONTINUANCE OF OPERATIONS ON THE
LEASED PROPERTY . . . . . . . . . . . . . . . 28
19.3 CONVEYANCE OF LEASED PROPERTY . . . . . . . . . 28
ARTICLE XX RESERVED . . . . . . . . . . . . . . . . . . . . 28
--------
ARTICLE XXI RISK OF LOSS . . . . . . . . . . . . . . . . . . 28
------------
ARTICLE XXII INDEMNIFICATION . . . . . . . . . . . . . . . 29
---------------
ARTICLE XXIII SUBLETTING AND ASSIGNMENT . . . . . . . . . . 30
-------------------------
23.1 SUBLETTING AND ASSIGNMENT . . . . . . . . . . . 30
23.2 NON-DISTURBANCE, SUBORDINATION AND ATTORNMENT . 30
ARTICLE XXIV OFFICER'S CERTIFICATES AND FINANCIAL STATEMENTS 31
-----------------------------------------------
24.1 ESTOPPEL CERTIFICATE . . . . . . . . . . . . . . 31
24.2 FINANCIAL STATEMENTS AND CERTIFICATES . . . . . 31
ARTICLE XXV INSPECTION . . . . . . . . . . . . . . . . . . . 32
----------
ARTICLE XXVI QUIET ENJOYMENT . . . . . . . . . . . . . . . 32
---------------
ARTICLE XXVII NOTICES . . . . . . . . . . . . . . . . . . . 32
-------
ARTICLE XXVIII APPRAISAL . . . . . . . . . . . . . . . . . . 34
---------
ARTICLE XXIX PURCHASE . . . . . . . . . . . . . . . . . . . 35
--------
29.1 FIRST REFUSAL TO PURCHASE. . . . . . . . . . . . 35
29.2 NEGATIVE PLEDGE. . . . . . . . . . . . . . . . . 35
ARTICLE XXX DEFAULT BY LESSOR . . . . . . . . . . . . . . . 35
-----------------
30.1 DEFAULT BY LESSOR . . . . . . . . . . . . . . . 35
30.2 LESSEE'S RIGHT TO CURE . . . . . . . . . . . . . 36
ARTICLE XXXI RESERVED . . . . . . . . . . . . . . . . . . . 36
--------
ARTICLE XXXII FINANCING OF THE LEASED PROPERTY . . . . . . . 36
--------------------------------
ARTICLE XXXIII SUBORDINATION, ATTORNMENT AND NON-DISTURBANCE 37
---------------------------------------------
ARTICLE XXXIV EXTENDED TERMS . . . . . . . . . . . . . . . . 37
--------------
ARTICLE XXXV MISCELLANEOUS . . . . . . . . . . . . . . . . 38
-------------
35.1 NO WAIVER . . . . . . . . . . . . . . . . . . . 38
35.2 REMEDIES CUMULATIVE . . . . . . . . . . . . . . 38
35.3 SURRENDER . . . . . . . . . . . . . . . . . . . 38
35.4 NO MERGER OF TITLE . . . . . . . . . . . . . . . 38
35.5 TRANSFERS BY LESSOR . . . . . . . . . . . . . . 38
35.6 GENERAL . . . . . . . . . . . . . . . . . . . . 38
35.7 MEMORANDUM OF LEASE . . . . . . . . . . . . . . 39
35.8 TRANSFER OF LICENSES . . . . . . . . . . . . . . 39
ARTICLE XXXVI GLOSSARY OF TERMS . . . . . . . . . . . . . . 39
-----------------
<PAGE>
LEASE
THIS LEASE ("Lease") dated as of ____________________ ___,
1996 is entered into by and between CAPSTONE CAPITAL CORPORATION,
a Maryland corporation, having its principal office at 1000 Urban
Center Drive, Suite 630, Birmingham, Alabama 35242 ("Lessor") and
GRAND COURT LIFESTYLES, INC., a Delaware corporation, having its
principal office at One Executive Drive,
Fort Lee, New Jersey 07024 ("Lessee").
ARTICLE 1
LEASED PROPERTY; TERM
----------------------
Upon and subject to the terms and conditions hereinafter set
forth, Lessor leases to Lessee and Lessee rents from Lessor all
of Lessor's rights and interest in and to the following property
(collectively, the "Leased Property"):
(a) the real property more particularly described on
Exhibit A attached hereto together with all covenants, licenses,
privileges and benefits thereto belonging, and any easements,
rights-of-way, rights of ingress and egress or other interests of
Lessor in, on or to any land, highway, street, road or avenue,
open or proposed, in, on, across, in front of, abutting or
adjoining such real property, including all strips and gores
adjacent to or lying between such real property and any adjacent
real property (the "Land");
(b) all buildings, structures, Fixtures (as
hereinafter defined) and other improvements of every kind
(including all alleyways and connecting tunnels, crosswalks,
sidewalks, landscaping, parking lots and structures and roadways
appurtenant to such buildings and structures presently or
hereafter situated upon the Land, and Capital Additions financed
by Lessor (but specifically excluding Capital Additions financed
by Lessee), drainage and all above-ground and underground utility
structures) (collectively, the "Leased Improvements");
(c) all permanently affixed equipment, machinery,
fixtures and other items of real and/or personal property,
including all components thereof, now and hereafter located in,
on or used in connection with, and permanently affixed to or
incorporated into the Leased Improvements, including all
furnaces, boilers, heaters, electrical equipment, heating,
plumbing, lighting, ventilating, refrigerating, incineration, air
and water pollution control, waste disposal, air-cooling and air
conditioning systems and apparatus, sprinkler systems and fire
and theft protection equipment, carpet, moveable or immoveable
walls or partitions and built-in oxygen and vacuum systems, all
of which are hereby deemed by the parties hereto to constitute
real estate, together with all replacements, modifications,
alterations and additions thereto, but specifically excluding all
items included within the category of Personal Property
(collectively the "Fixtures");
(d) the Personal Property;
(e) to the extent permitted by law, all permits,
approvals, and other intangible property or any interest therein
now or hereafter owned or held by Lessor in connection with the
Leased Property or any business or businesses now or hereafter
conducted by Lessee or any Tenant or with the use thereof,
including all leases, contract rights, agreements, trade names,
water rights and reservations, zoning rights, business licenses
and warranties (including those relating to construction or
fabrication) related to the Leased Property or any part thereof,
but specifically excluding the general corporate trademarks,
service marks, operations, manuals, logos, insignia or books and
records of Lessee, which Lessor agrees never have been, are not
now and will not become by virtue of this Lease owned in any
manner by Lessor; and
(f) all site plans, surveys, soil and substrata
studies, architectural drawings, plans and specifications,
engineering plans and studies, floor plans, landscape plans, and
other plans and studies that relate to the Land or the Leased
Improvements and are in Lessor's possession or control.
SUBJECT, HOWEVER, to the matters set forth on Exhibit B attached
---------
hereto (the "Permitted Exceptions"), to have and to hold for a
fixed term of ___ years (the "Initial Term") commencing on the
earlier date (the "Commencement Date") to occur of (i) the date
of completion of the construction of the Leased Improvements on
the Land as defined in Section 10.1 of that certain Development
Agreement of even date herewith (the "Development Agreement")
between Lessor and Lessee, (ii) the date a Tenant first takes
occupancy pursuant to a Tenant Lease, and (iii) the date which is
fifteen months from the date hereof, and ending at midnight on
last day of the 180th month after the Commencement Date [OR FOR
LEASES AFTER THE INITIAL LEASE, THE SAME EXPIRATION DATE AS SUCH
INITIAL LEASE], unless sooner terminated pursuant to the terms
hereof.
ARTICLE 2
RENT
----
2.1 MINIMUM RENT AND ADJUSTMENTS TO MINIMUM RENT. Lessee
shall pay to Lessor, without notice, demand, set off (except as
set forth in Section 30.2) or counterclaim, in advance in lawful
money of the United States of America, at Lessor's address set
forth herein or at such other place or to such other person,
firms or corporations as Lessor from time to time may designate
in writing, Minimum Rent, as adjusted annually pursuant to
Section 2.1(b) during the Term, as follows:
(a) Minimum Rent. Lessee will pay to Lessor as rent
------------
(as adjusted from time to time in accordance with Section
2.1(b), 2.1(e), or 15.4, the "Minimum Rent") for the Leased
Property the annual sum equal to the product of (i) the
Project Amount times (ii) the greater of (X) 9.75% or (Y)
-----
the Treasury Yield in effect ten days prior to the Commencement
Date plus 3.5%. The Minimum Rent shall be payable in advance
----
in 12 equal, consecutive monthly installments on the first
day of each calendar month during the Term. The parties
shall execute an acknowledgement of the Commencement Date and the
initial Minimum Rent calculated pursuant to this Section 2.1(a)
as soon as reasonably practicable after the Commencement Date.
The Minimum Rent shall be prorated for any partial month, and is
subject to adjustment as provided in Sections 2.1(b), 2.1(e) and
9.3(b)(iv) below.
(b) Increases to Minimum Rent. On each anniversary of the
-------------------------
Commencement Date (each such annual date referred to as the
"Adjustment Date") throughout the Initial Term and any Extended
Terms, the then-current Minimum Rent shall be increased annually
effective as of such Adjustment Date by an amount equal to three
percent of the Minimum Rent in effect for the previous twelve-
month period.
(c) Capital Replacement Account. Lessee will pay to Lessor
---------------------------
for deposit in a money market account in a federally insured bank
in Birmingham, Alabama acceptable to Lessor and Lessee the sums
set forth on Exhibit C attached hereto, which funds (the "Capital
---------
Replacement Account") shall be made available to Lessee to make
repairs and replacements for the Leased Property as approved by
Lessor, the costs of which according to generally accepted
accounting principles must be depreciated over periods greater
than one year. The Capital Replacement Account shall be in the
name of Lessor, and interest earned on such account shall be
retained in the Capital Replacement Account. Lessee shall make
detailed requests for such funds in writing to Lessor in the same
form as a Request pursuant Section 9.3 hereof. Within 30 days of
such Request, Lessor shall reasonably approve the amount of
requested funds and make mutually agreeable arrangements for the
disbursement of the funds, or provide Lessee with written notice
in reasonable detail specifying Lessor's objections to such
Request.
(d) Payment of Minimum Rent. All payments of Minimum Rent
-----------------------
shall be made in lawful money of the United States by wire
transfer of same day funds to Lessor's account #0000040999 at
First Commercial Bank, Birmingham, Alabama, ABA Routing
#062003605, Attention: Todd Beard, with advice to John W.
McRoberts at (205) 967-2092 (or such other account or location
specified by Lessor from time to time in writing) on or before
2:00 p.m., Birmingham time, on any Business Day.
(e) Recalculation of Minimum Rent. The parties agree that
-----------------------------
the Project Amount may be estimated as of the Commencement Date
pursuant to the terms of the Development Agreement. Lessor shall
recalculate the Minimum Rent pursuant to Section 2.1(a) (using
the same rate used to calculate the initial Minimum Rent pursuant
to Section 2.1(a)(ii) above) as soon as reasonably practicable
after the determination of the final Project Amount under the
Development Agreement, whereupon the parties shall execute an
acknowledgement of such recalculated Minimum Rent.
2.2 CALCULATION OF INCREASES TO MINIMUM RENT. On or about
each Adjustment Date, Lessor will calculate the increase in the
Minimum Rent for the one-year period commencing with such
Adjustment Date pursuant to the provisions of Section 2.1(b) and
will provide Lessee with written notice of same.
2.3 ADDITIONAL CHARGES. Lessee will also pay and discharge
as and when due all other amounts, liabilities, obligations and
Impositions in connection with the Leased Property, which amounts
Lessee assumes or agrees to pay under this Lease including, to
the extent applicable, any ground lease payments and any
condominium or owner's association dues, assessments or other
charges, insurance premiums, utilities, and all fines, penalties,
interest and costs which may be added for non-payment or late
payment of any such items (collectively, the "Additional
Charges"), and Lessor shall have all legal, equitable and
contractual rights, powers and remedies provided in this Lease,
by statute or otherwise, in the case of non-payment of the
Additional Charges, as well as the Minimum Rent. If any
installment of Minimum Rent or Additional Charges (but only as to
those Additional Charges which are payable directly to Lessor)
shall not be paid within ten days after the date when due, Lessee
will pay Lessor on demand, as Additional Charges, interest (to
the extent permitted by law) computed at the Overdue Rate on the
amount of such installment, from the due date when due to the
date of payment in full thereof. In the event Lessor provides
Lessee with written notice of failure to timely pay any
installment of Minimum Rent or any Additional Charges pursuant to
Section 15.1(b) more than three times within any twelve-month
period, Lessee shall pay an administrative fee to Lessor in the
amount of $500.00 for each additional written notice Lessor gives
pursuant to Section 15.1(b) during the next twelve months. To
the extent that Lessee pays any Additional Charges to Lessor or
the Facility Mortgagee pursuant to any requirement of this Lease,
Lessee shall be relieved of its obligation to pay such Additional
Charges to the entity to which such Additional Charges would
otherwise be due and Lessor shall timely pay, or shall cause the
Facility Mortgagee to timely pay, any such Additional Charges to
the person to whom the same are due. Additional charges shall be
deemed Rent hereunder.
2.4 NET LEASE. The Rent shall be paid absolutely net to
Lessor, so that this Lease shall yield to Lessor the full amount
of the installments of Minimum Rent and the payments of
Additional Charges throughout the Term but subject to any
provisions of this Lease which expressly provide for payments by
Lessor or the adjustment of the Rent or other charges.
ARTICLE 3
IMPOSITIONS
-----------
3.1 PAYMENT OF IMPOSITIONS. Subject to Article XI relating
to permitted contests, Lessee will pay, or cause to be paid, all
Impositions before any fine, penalty, interest or cost may be
added for non-payment, such payments to be made directly to the
taxing authorities where feasible, and Lessee will promptly, upon
request, furnish to Lessor copies of official receipts or other
satisfactory proof evidencing such payments. Lessee's obligation
to pay such Impositions and the amount thereof shall be deemed
absolutely fixed upon the date such Impositions become a lien
upon the Leased Property or any part thereof. If any such
Imposition may lawfully be paid in installments (whether or not
interest shall accrue on the unpaid balance of such Imposition),
Lessee may exercise the option to pay the same (and any accrued
interest on the unpaid balance of such Imposition) in
installments and, in such event, shall pay such installments
during the Term hereof as the same become due and before any
fine, penalty, premium, further interest or cost may be added
thereto. Lessor, at its expense, shall, to the extent permitted
by applicable law, prepare and file all tax returns and reports
as may be required by governmental authorities in respect of
Lessor's net income, gross receipts, franchise taxes and taxes on
its capital stock. Lessee, at its expense, shall, to the extent
permitted by applicable laws and regulations, prepare and file
all other tax returns and reports in respect of any Imposition as
may be required by governmental authorities. If any refund shall
be due from any taxing authority in respect of any Imposition
paid by Lessee, the same shall be paid over to or retained by
Lessee if no Event of Default shall have occurred hereunder and
be continuing. Any such funds retained by Lessor due to an Event
of Default shall be applied as provided in Article XV. Lessor
and Lessee shall, upon request of the other, provide such data as
is maintained by the party to whom the request is made with
respect to the Leased Property as may be necessary to prepare any
required returns and reports. In the event governmental
authorities classify any property covered by this Lease as
personal property, Lessee shall file all personal property tax
returns in such jurisdictions where filing is required. Lessor
and Lessee will provide the other party, upon request, with cost
and depreciation records necessary for filing returns for any
property so classified as personal property. Where Lessor is
legally required to file personal property tax returns, and
Lessee is obligated for the same hereunder, Lessee will be
provided with copies of assessment notices in sufficient time for
Lessee to file a protest. Lessee may, upon giving 30 days' prior
written notice to Lessor, at Lessee's option and at Lessee's sole
cost and expense, protest, appeal, or institute such other
proceedings as Lessee may deem appropriate to effect a reduction
of real estate or personal property assessments and Lessor, if
requested by Lessee and at Lessee's expense as aforesaid, shall
fully cooperate with Lessee in such protest, appeal, or other
action. Billings for reimbursement by Lessee to Lessor of
personal property taxes shall be accompanied by copies of an
invoice therefor and payments thereof which identify the personal
property with respect to which such payments are made. Lessor
will cooperate with Lessee in order that Lessee may fulfill its
obligations hereunder, including the execution of any instruments
or documents reasonably requested by Lessee.
3.2 PRORATION OF IMPOSITIONS. Any Imposition imposed in
respect of the tax-fiscal period during which the Term terminates
shall be prorated between Lessor and Lessee, whether or not such
Imposition is imposed before or after such termination, and
Lessee's and Lessor's obligation to pay their respective prorated
shares thereof shall survive such termination.
3.3 UTILITY CHARGES. Lessee will, or will cause Tenants
to, contract for, in its own name, and will pay or cause to be
paid all charges for, electricity, power, gas, oil, water and
other utilities used in the Leased Property during the Term.
3.4 INSURANCE PREMIUMS. Lessee will contract for, in its
own name, and will pay or cause to be paid all premiums for, the
insurance coverage required to be maintained by Lessee pursuant
to Article XII during the Term.
ARTICLE 4
NO TERMINATION
--------------
Except as provided in this Lease, Lessee shall remain bound
by this Lease in accordance with its terms and shall neither take
any action without the consent of Lessor to modify, surrender or
terminate the same, nor seek nor be entitled to any abatement,
deduction, deferment or reduction of the Rent, or set-off against
the Rent, nor shall the respective obligations of Lessor and
Lessee be otherwise affected by reason of (a) any damage to, or
destruction of, the Leased Property or any portion thereof from
whatever cause or any Taking of the Leased Property or any
portion thereof, except as otherwise provided in Articles XIII
and XIV, (b) the lawful or unlawful prohibition of, or
restriction upon, Lessee's use of the Leased Property, or any
portion thereof, or the interference with such use by any person,
corporation, partnership or other entity, or by reason of
eviction by paramount title, (c) any claim which Lessee has or
might have against Lessor or by reason of any default or breach
of any warranty by Lessor under this Lease or any other agreement
between Lessor and Lessee or to which Lessor and Lessee are
parties, (d) any bankruptcy, insolvency, reorganization,
composition, readjustment, liquidation, dissolution, winding up
or other proceedings affecting Lessor or any assignee or
transferee of Lessor, or (e) any other cause whatsoever whether
similar or dissimilar to any of the foregoing except for actions
or omissions of Lessor. Lessee hereby specifically waives all
rights arising from any occurrence whatsoever which may now or
hereafter be conferred upon it by law to (i) modify, surrender or
terminate this Lease or quit or surrender the Leased Property or
any portion thereof, or (ii) entitle Lessee to any abatement,
reduction, suspension or deferment of the Rent or other sums
payable by Lessee hereunder, except as otherwise specifically
provided in this Lease. The obligations of Lessor and Lessee
hereunder shall be separate and independent covenants and
agreements and the Rent and all other sums payable by Lessee
hereunder shall continue to be payable in all events unless the
obligations to pay the same shall be terminated pursuant to the
express provisions of this Lease. Notwithstanding the foregoing,
Lessee shall have the right by separate and independent action to
pursue any claim or seek any damages it may have against Lessor
as a result of a breach by Lessor of the terms of this Lease.
ARTICLE 5
OWNERSHIP OF LEASED PROPERTY
----------------------------
5.1 OWNERSHIP OF THE PROPERTY. Lessee acknowledges that
the Leased Property is the property of Lessor and that Lessee has
only the right to the possession and use of the Leased Property
upon the terms and conditions of this Lease.
5.2 PERSONAL PROPERTY. Lessee may (and shall as provided
hereinbelow), at its expense, install, affix or assemble or place
on any parcels of the Land or in any of the Leased Improvements
any items of the Personal Property, and may remove, replace or
substitute for the same from time to time in the ordinary course
of Lessee's business. Lessee shall provide and maintain during
the entire Term all such Personal Property as shall be necessary
in order to operate the Facility in compliance with all licensure
and certification requirements, in compliance with all applicable
Legal Requirements and Insurance Requirements and otherwise in
accordance with customary practice in the industry for the
Primary Intended Use.
ARTICLE 6
CONDITION AND USE OF LEASED PROPERTY
------------------------------------
6.1 CONDITION OF THE LEASED PROPERTY. Lessee acknowledges
receipt and delivery of possession of the Leased Property and
that Lessee has examined and otherwise acquired knowledge of the
condition of the Leased Property prior to the execution and
delivery of this Lease and has found the same to be in good order
and repair and satisfactory for its purpose hereunder. Lessee is
leasing the Leased Property "as is" in its present condition.
Lessee waives any claim or action against Lessor in respect of
the condition of the Leased Property. LESSOR MAKES NO WARRANTY
OR REPRESENTATION, EXPRESS OR IMPLIED, IN RESPECT OF THE LEASED
PROPERTY OR ANY PART THEREOF, EITHER AS TO ITS FITNESS FOR USE,
SUITABILITY, DESIGN OR CONDITION FOR ANY PARTICULAR USE OR
PURPOSE OR OTHERWISE, OR AS TO QUALITY OF THE MATERIAL OR
WORKMANSHIP THEREIN, LATENT OR PATENT, IT BEING AGREED THAT ALL
SUCH RISKS ARE TO BE BORNE BY LESSEE. LESSEE ACKNOWLEDGES THAT
THE LEASED PROPERTY HAS BEEN INSPECTED BY LESSEE AND IS
SATISFACTORY TO IT IN ALL RESPECTS.
6.2 USE OF THE LEASED PROPERTY.
(a) After the Commencement Date and during the entire Term,
Lessee shall use or cause to be used the Leased Property and the
improvements thereon as an assisted and independent living
facility and for such other uses as may be necessary in
connection with or incidental to such use (the "Primary Intended
Use"). Lessee shall not use the Leased Property or any portion
thereof for any other use without the prior written consent of
Lessor, which consent shall not be unreasonably withheld or
delayed.
(b) Lessee covenants that it will obtain and maintain all
material approvals needed to use and operate the Leased Property
and the Facility for the Primary Intended Use in compliance with
all applicable Legal Requirements.
(c) Lessee covenants and agrees that during the Term it
will use its reasonable best efforts to operate continuously the
Leased Property in accordance with its Primary Intended Use and
to maintain its certifications for reimbursement, if any, and
licensure and its accreditation, if compliance with accreditation
standards is required to maintain the operations of the Facility
and if a failure to comply would adversely affect operations of
the Facility.
(d) Lessee shall not commit or suffer to be committed any
waste on the Leased Property, or in the Facility or cause or
permit any nuisance thereon.
(e) Lessee shall neither suffer nor permit the Leased
Property or any portion thereof, including any Capital Addition
whether or not financed by Lessor, to be used in such a manner as
(i) might reasonably tend to impair Lessor's estate therein or in
any portion thereof, or (ii) may reasonably result in a claim or
claims of adverse usage or adverse possession by the public, as
such, or of implied dedication of the Leased Property or any
portion thereof.
(f) Lessee will not utilize any Hazardous Materials on the
Leased Property except in accordance with applicable Legal
Requirements and will not permit any contamination which may
require remediation under any applicable Hazardous Materials Law.
Lessee agrees not to dispose of any Hazardous Materials or
substances within the sewerage system of the Leased Property, and
that it will handle all "red bag" wastes in accordance with
applicable Hazardous Materials Laws.
6.3 MANAGEMENT OF FACILITY. Unless otherwise agreed to in
writing by Lessor (i) Lessee shall cause the Facility to be
managed (including any leasing activities) at all times by Lessee
or an Affiliate of Lessee, (ii) Lessee shall not enter into any
agreement (oral or written) with respect to such management and
leasing activities unless the terms thereof and the proposed
manager or leasing agent have been approved in writing by Lessor,
(iii) all such management or leasing agreements must be in
writing, and (iv) all management or leasing agreements with an
Affiliate of Lessee must contain provisions to the effect that
(A) the obligation of Lessee to pay management fees is
subordinate to its obligation to pay the Rent, and (B) the
manager shall not have the right to collect any management fees
during the continuance of an Event of Default but may
cumulatively collect any management fee so suspended after the
Event of Default has been cured.
6.4 LESSOR TO GRANT EASEMENTS. Lessor will, from time to
time, at the request of Lessee and at Lessee's cost and expense,
but subject to the approval of Lessor (a) grant easements and
other rights in the nature of easements, (b) release existing
easements or other rights in the nature of easements which are
for the benefit of the Leased Property, (c) dedicate or transfer
unimproved portions of the Leased Property for road, highway or
other public purposes, (d) execute petitions to have the Leased
Property annexed to any municipal corporation or utility
district, (e) execute amendments to any covenants and
restrictions affecting the Leased Property, and (f) execute and
deliver to any person such instruments as may be necessary or
appropriate to confirm or effect such grants, releases,
dedications and transfers (to the extent of its interest in the
Leased Property), but only upon delivery to Lessor of an
Officer's Certificate stating (and such other information as
Lessor may reasonably require confirming) that such grant,
release, dedication, transfer, petition or amendment is required
or beneficial for and not detrimental to the proper conduct of
the business of Lessee on the Leased Property and does not reduce
the value thereof.
ARTICLE 7
LEGAL, INSURANCE AND FINANCIAL REQUIREMENTS
-------------------------------------------
7.1 COMPLIANCE WITH LEGAL AND INSURANCE REQUIREMENTS.
Subject to Article XI relating to permitted contests, Lessee, at
its expense, will promptly (a) comply with all material Legal
Requirements and Insurance Requirements in respect of the use,
operation, maintenance, repair and restoration of the Leased
Property, whether or not compliance therewith shall require
structural change in any of the Leased Improvements or interfere
with the use and enjoyment of the Leased Property, and (b)
directly or indirectly with the cooperation of Lessor, but at
Lessee's sole cost and expense, procure, maintain and comply with
all material licenses, certificates of need, if any, and other
authorizations required for (i) any use of the Leased Property
then being made, and for (ii) the proper erection, installation,
operation and maintenance of the Leased Improvements or any part
thereof, including any Capital Additions.
7.2 LEGAL REQUIREMENT COVENANTS. Lessee covenants and
agrees that the Leased Property shall not be used for any
unlawful purpose. Lessee shall, directly or indirectly with the
cooperation of Lessor, but at Lessee's sole cost and expense,
acquire and maintain all material licenses, certificates, permits
and other authorizations and approvals needed to operate the
Leased Property in its customary manner for the Primary Intended
Use and any other use conducted on the Leased Property as may be
permitted from time to time hereunder. Lessee further covenants
and agrees that Lessee's use of the Leased Property and Lessee's
maintenance, alteration, and operation of the same, and all parts
thereof, shall at all times conform to all applicable Legal
Requirements.
ARTICLE 8
REPAIRS; RESTRICTIONS AND ANNUAL INSPECTIONS
--------------------------------------------
8.1 MAINTENANCE AND REPAIR.
(a) Lessee, at its expense, will keep the Leased Property
and all private roadways, sidewalks and curbs appurtenant thereto
in reasonably good order and repair, ordinary wear and tear
excepted (whether or not the need for such repairs occurs as a
result of Lessee's use, any prior use, the elements, the age of
the Leased Property or any portion thereof), and except as
otherwise provided in Articles XIII and XIV, with reasonable
promptness will make all necessary and appropriate repairs
thereto of every kind and nature, whether interior or exterior,
structural or non-structural, ordinary or extraordinary, foreseen
or unforeseen or arising by reason of a condition existing prior
to or after the commencement of the Term of this Lease (concealed
or otherwise). All repairs shall, to the extent reasonably
achievable, be at least equivalent in quality to the original
work and shall be accomplished by Lessee or a party selected by
Lessee. Lessee will not take or omit to take any action the
taking or omission of which might materially impair the value or
usefulness of the Leased Property or any part thereof for the
Primary Intended Use. If Lessee fails to perform any of its
obligations hereunder, or if Lessor reasonably determines that
action is necessary and is not being taken, Lessor may, on giving
30 days' written notice to Lessee (other than in a case
reasonably deemed by Lessor to be an emergency, in which case no
such notice shall be required), without demand on Lessee, perform
any such obligations in such manner and to such extent and take
such other action as Lessor may deem appropriate, and all costs,
expenses and charges of Lessor relating to any such action shall
constitute Additional Charges and shall be payable by Lessee to
Lessor in accordance with Section 2.3.
(b) Except for the use of any insurance proceeds (to the
extent required by Sections 13.1 and 13.2) and any Award (to the
extent required by Section 14.3) Lessor shall not under any
circumstances be required to build or rebuild any improvements on
the Leased Property, or to make any repairs, replacements,
alterations, restorations, or renewals of any nature or
description to the Leased Property, whether ordinary or
extraordinary, structural or nonstructural, foreseen or
unforeseen, or to make any expenditure whatsoever with respect
thereto in connection with this Lease, or to maintain the Leased
Property in any way.
(c) Nothing contained in this Lease and no action or
inaction by Lessor shall be construed as (i) constituting the
consent or request of Lessor, expressed or implied, to any
contractor, subcontractor, laborer, materialman or vendor to or
for the performance of any particular labor or services or the
furnishing of any particular materials or other property for the
construction, alteration, addition, repair or demolition of or to
the Leased Property or any part thereof, or (ii) giving Lessee
any right, power or permission to contract for or permit the
performance of any labor or services or the finishing of any
materials or other property in such fashion as would permit the
making of any claim against Lessor in respect thereof or to make
any agreement that may create, or in any way be the basis for,
any right, title, interest, lien, claim or other encumbrance upon
the estate of Lessor in the Leased Property or any portion
thereof.
(d) Unless Lessor shall convey any of the Leased Property
to Lessee pursuant to the provisions of this Lease, Lessee will,
upon the expiration or prior termination of this Lease, vacate
and surrender the Leased Property to Lessor in the condition in
which the Leased Property was originally received from Lessor,
except for ordinary wear and tear (subject to the obligation of
Lessee to maintain the Property in good order and repair during
the entire Term), damage caused by the gross negligence or
willful acts of Lessor, and damage or destruction described in
Article XIII or resulting from a Taking described in Article XIV
which Lessee is not required by the terms of this Lease to repair
or restore, and except as repaired, rebuilt, restored, altered or
added to as permitted or required by the provisions of this
Lease.
8.2 ENCROACHMENTS; RESTRICTIONS. If any of the
Improvements shall, at any time, encroach upon any property,
street or right-of-way adjacent to the Leased Property, or shall
violate the agreements or conditions contained in any applicable
Legal Requirement, lawful restrictive covenant or other agreement
affecting the Leased Property, or any part thereof, or shall
impair the rights of others under any easement or right-of-way to
which the Leased Property is subject, then promptly upon the
request of Lessor, Lessee shall at its expense, subject to its
right to contest the existence of any such encroachment,
violation or impairment, (a) obtain valid and effective waivers
or settlements of all claims, liabilities and damages resulting
from each such encroachment, violation or impairment, whether the
same shall affect Lessor or Lessee, or (b) make such changes in
the Improvements, and take such other actions, as Lessor in the
good faith exercise of its judgment deems reasonably practicable,
to remove such encroachment, or to end such violation or
impairment, including, if necessary, the alteration of any of the
Leased Improvements, and in any event take all such actions as
may be necessary in order to be able to continue the operation of
the Facility for the Primary Intended Use substantially in the
manner and to the extent the Facility was operated prior to the
assertion of such violation or encroachment. Any such alteration
shall be made in conformity with the applicable requirements of
Article IX. Lessee's obligations under this Section 8.2 shall be
in addition to and shall in no way discharge or diminish any
obligation of any insurer under any policy of title or other
insurance and Lessee shall be entitled to a credit for any sums
recovered by Lessor under any such policy of title or other
insurance and Lessee shall also be entitled to a credit in the
amount of sums recovered against any purchase price obligation if
Lessee purchases the Leased Property pursuant to any right
hereunder. In the event the purchase of the Leased Property is
consummated before any such proceeds are paid to Lessor, Lessee
will pay the full purchase price to Lessor and Lessor will remit
any such insurance proceeds within 15 days of the receipt
thereof.
8.3 ANNUAL INSPECTIONS. From time to time during the Term,
Lessor and its agents shall have the right to inspect the Leased
Property and all systems contained therein at any reasonable time
to determine Lessee's compliance with its obligations under this
Lease, including those obligations set forth in Article VII and
this Article VIII. Lessee shall be responsible for the costs of
such inspections, which costs shall not exceed the sum of $2,000
per year for each year of the Lease.
ARTICLE 9
CAPITAL ADDITIONS
-----------------
9.1 CONSTRUCTION OF CAPITAL ADDITIONS TO THE LEASED
PROPERTY.
(a) If no Event of Default shall have occurred and be
continuing, Lessee shall have the right, upon and subject to the
terms and conditions set forth below, to construct or install
Capital Additions on the Leased Property with the prior written
consent of Lessor which consent shall not be unreasonably
withheld; provided that Lessee shall not be permitted to create
any Encumbrance on the Leased Property in connection with such
Capital Addition without first complying with Section 9.1(b)
hereof. Prior to commencing construction of any Capital
Addition, Lessee shall submit to Lessor in writing a proposal
setting forth in reasonable detail any proposed Capital Addition
and shall provide to Lessor such plans and specifications,
permits, licenses, contracts and other information concerning the
proposed Capital Addition as Lessor may reasonably request.
Without limiting the generality of the foregoing, such proposal
shall indicate the approximate projected cost of constructing
such Capital Addition and the use or uses to which it will be
put.
(b) Prior to commencing construction of any Capital
Addition, Lessee shall first request Lessor to provide funds to
pay for such Capital Addition in accordance with the provisions
of Section 9.3. If Lessor declines or is unable to provide such
financing on terms acceptable to Lessee and Lessee rejects
Lessor's offer of financing, Lessee may arrange or provide other
financing, subject to the provisions of Section 9.2. Lessor will
reasonably cooperate with Lessee regarding the grant of any
consents or easements or the like necessary or appropriate in
connection with any Capital Addition; provided that no Capital
Addition shall be made which would tie in or connect any Leased
Improvements on the Leased Property with any other improvements
on property adjacent to the Leased Property (and not part of the
Land covered by this Lease) including tie-ins of buildings or
other structures or utilities, unless Lessee shall have obtained
the prior written approval of Lessor, which approval shall not be
unreasonably withheld. All proposed Capital Additions shall be
architecturally integrated into and consistent with the Leased
Property.
9.2 CAPITAL ADDITIONS FINANCED BY LESSEE. If Lessee
finances or arranges to finance any Capital Addition with a party
other than Lessor or if Lessee pays cash for any Capital
Addition, this Lease shall be and hereby is amended to provide as
follows:
(a) There shall be no adjustment in the Minimum Rent by
reason of any such Capital Addition.
(b) Upon the expiration or earlier termination of this
Lease, Lessor shall compensate Lessee for all Capital Additions
paid for or financed by Lessee in any of the following ways:
(i) By purchasing all Capital Additions paid for
by Lessee from Lessee for cash in the amount of the
Fair Market Added Value at the time of purchase by
Lessor of all such Capital Additions paid for or
financed by Lessee; or
(ii) Such other arrangement regarding such
compensation as shall be mutually acceptable to Lessor
and Lessee.
Any amount owed by Lessee to Lessor under this Lease at such
termination or expiration may be deducted from any compensation
for Capital Additions payable by Lessor to Lessee under this
Section 9.2.
9.3 CAPITAL ADDITIONS FINANCED BY LESSOR.
(a) Lessee shall request that Lessor provide or arrange
financing for a Capital Addition by providing to Lessor such
information about the Capital Addition as Lessor may reasonably
request (a "Request"), including all information referred to in
Section 9.1 above. Lessor may, but shall be under no obligation
to provide or obtain the funds necessary to meet the Request.
Within 30 days of receipt of a Request, Lessor shall notify
Lessee as to whether it will finance the proposed Capital
Addition and, if so, the terms and conditions upon which it would
do so, including the terms of any amendment to this Lease. In no
event (i) shall the portion of the projected Capital Addition
Cost comprised of land (if any), materials, labor charges
(including architectural and builders fee) and fixtures and
interest be less than 90% of the total amount of such cost, or
(ii) shall Lessee or any of its Affiliates be entitled to any
commission or development fee, directly or indirectly, as a
portion of the Capital Addition Cost. Any Capital Addition not
financed by Lessor must still be approved in writing by Lessor
pursuant to the terms of Section 9.1 hereof, which consent will
not be unreasonably withheld. Lessee may withdraw its Request by
notice to Lessor at any time before or after receipt of Lessor's
terms and conditions.
(b) If Lessor agrees to finance the proposed Capital
Addition, Lessor's obligation to advance any funds shall be
subject to receipt of all of the following, in form and substance
reasonably satisfactory to Lessor:
(i) such loan documentation as may be required by
Lessor;
(ii) any information, certificates, licenses,
permits or documents requested by Lessor, or by any
lender with whom Lessor has agreed or may agree to
provide financing, necessary or appropriate to confirm
that Lessee will be able to use the Capital Addition
upon completion thereof in accordance with the Primary
Intended Use, including all required federal, state or
local government licenses and approvals;
(iii) an Officer's Certificate and, if
requested, a certificate from Lessee's architect,
setting forth in detail reasonably satisfactory to
Lessor the projected (or actual, if available) cost of
the proposed Capital Addition;
(iv) an amendment to this Lease, duly executed and
acknowledged, in form and substance satisfactory to
Lessor and Lessee (the "Lease Amendment"), containing
such provisions as may be necessary or appropriate due
to the Capital Addition, including any appropriate
changes in the legal description of the Land and the
Rent, all such changes to be mutually agreed upon by
Lessor and Lessee;
(v) a deed conveying title to Lessor to any land
and improvements or other rights acquired for the
purpose of constructing the Capital Addition, free and
clear of any liens or encumbrances except those
approved in writing by Lessor and, both prior to and
following completion of the Capital Addition, an as-
built survey thereof reasonably satisfactory to Lessor;
(vi) endorsements to any outstanding policy of
title insurance covering the Leased Property or a
supplemental policy of title insurance covering the
Leased Property reasonably satisfactory in form and
substance to Lessor (A) updating the same without any
additional exceptions, except as may be permitted by
Lessor; and (B) increasing the coverage thereof by an
amount equal to the Fair Market Value of the Capital
Addition (except to the extent covered by the owner's
policy of title insurance referred to in subparagraph
(vii) below);
(vii) if required by Lessor, (A) an owner's
policy of title insurance insuring fee simple title to
any land conveyed to Lessor pursuant to subparagraph
(v), free and clear of all liens and encumbrances
except those approved by Lessor and (B) a lender's
policy of title insurance satisfactory in form and
substance to Lessor and the Lending Institution
advancing any portion of the Capital Addition Cost;
(viii) if required by Lessor upon completion of
the Capital Addition, an M.A.I appraisal of the Leased
Property; and
(ix) such other certificates (including
endorsements increasing the insurance coverage, if any,
at the time required by Section 12.1), documents,
customary opinions of Lessee's counsel, appraisals,
surveys, certified copies of duly adopted resolutions
of the Board of Directors of Lessee authorizing the
execution and delivery of the Lease Amendment and any
other instruments or documents as may be reasonably
required by Lessor.
(c) Upon making a Request to finance a Capital Addition,
whether or not such financing is actually consummated, Lessee
shall pay the reasonable costs and expenses of Lessor and any
Lending Institution which has committed to finance such Capital
Addition paid or incurred in connection with the financing of the
Capital Addition, including (i) the fees and expenses of their
respective counsel, (ii) the amount of any recording or transfer
taxes and fees, (iii) documentary stamp taxes, if any, (iv) title
insurance charges, (v) appraisal fees, if any, and (vi)
commitment fees, if any.
9.4 NON-CAPITAL ADDITIONS. Lessee shall have the right and
the obligation to make additions, modifications or improvements
to the Leased Property which are not Capital Additions, including
tenant improvements made in connection with the Tenant Leases,
from time to time as may reasonably be necessary for its uses and
purposes and to permit Lessee to comply fully with its
obligations set forth in this Lease; provided that such action
will be undertaken expeditiously, in a workmanlike manner and
will not significantly alter the character or purpose or detract
from the value or operating efficiency of the Leased Property and
will not significantly impair the revenue producing capability of
the Leased Property or adversely affect the ability of Lessee to
comply with the provisions of this Lease. Title to all non-
Capital Additions, modifications and improvements shall, without
payment by Lessor at any time, be included under the terms of
this Lease and, upon expiration or earlier termination of this
Lease, shall pass to and become the property of Lessor.
9.5 SALVAGE. All useable materials (unless the value of
such materials has been netted against the cost of the following
described Capital Additions or repairs) which are scrapped or
removed in connection with the making of either Capital Additions
permitted by Section 9.1 or repairs required by Article VIII
shall be disposed of, at the request of Lessor, and the net
proceeds thereof remitted to Lessor within 15 days of such
disposal.
ARTICLE 10
LIENS
-----
Subject to the provisions of Article XI relating to
permitted contests, Lessee will not directly or indirectly create
or suffer to exist and will promptly discharge at its expense any
lien, encumbrance, attachment, title retention agreement or claim
upon the Leased Property or any attachment, levy, claim or
encumbrance in respect of the Rent, not including, however, (a)
this Lease, (b) the matters, if any, set forth in Exhibit B
---------
attached hereto, (c) restrictions, liens and other encumbrances
which are consented to in writing by Lessor, or any easements
granted pursuant to the provisions of Section 6.3 of this Lease,
(d) liens for those taxes of Lessor which Lessee is not required
to pay hereunder, (e) subleases permitted by Article XXIII, (f)
liens for Impositions or for sums resulting from noncompliance
with Legal Requirements so long as (1) the same are not yet
payable or are payable without the addition of any fine or
penalty or (2) such liens are in the process of being contested
in accordance with the provisions of Article XI, (g) liens of
mechanics, laborers, materialmen, suppliers or vendors for sums
either disputed or not yet due, provided that (1) the payment of
such sums shall not be postponed for more than 60 days after the
completion of the action (including any appeal from any judgment
rendered therein) giving rise to such lien and such reserve or
other appropriate provisions as shall be required by law or
generally accepted accounting principles shall have been made
therefor or (2) any such liens are in the process of being
contested in accordance with the provisions of Article XI, (h)
any Encumbrance placed on the Leased Property by Lessor, and (i)
any conditions as a result of the action or inaction of Lessor.
ARTICLE 11
PERMITTED CONTESTS
------------------
Lessee, after ten days' prior written notice to Lessor, on
its own or on Lessor's behalf (or in Lessor's name), but at
Lessee's expense, may contest, by appropriate legal proceedings
conducted in good faith and with due diligence, the amount,
validity or application, in whole or in part, of any Imposition,
Legal Requirement, Insurance Requirement, lien, attachment, levy,
encumbrance, charge or claim (collectively "Charge") not
otherwise permitted by Article X, which is required to be paid or
discharged by Lessee or any Tenant; provided that (a) in the case
of an unpaid Charge, the commencement and continuation of such
proceedings, or the posting of a bond or certificate of deposit
as may be permitted by applicable law, shall suspend the
collection thereof from Lessor and from the Leased Property; (b)
neither the Leased Property nor any Rent therefrom nor any part
thereof or interest therein would be in any immediate danger of
being sold, forfeited, attached or lost; (c) Lessor would not be
in any immediate danger of civil or criminal liability for
failure to comply therewith pending the outcome of such
proceedings; (d) in the event that any such contest shall involve
a sum of money or potential loss in excess of $50,000.00, then
Lessee shall deliver to Lessor and its counsel an Officer's
Certificate as to the matters set forth in clauses (a), (b) and
(c) and such opinions of legal counsel as Lessor may reasonably
request; (e) in the case of an Insurance Requirement, the
coverage required by Article XII shall be maintained; and (f) if
such contest be finally resolved against Lessor or Lessee, Lessee
shall, as Additional Charges due hereunder, promptly pay the
amount required to be paid, together with all interest and
penalties accrued thereon, or otherwise comply with the
applicable Charge; provided further that nothing contained herein
shall be construed to permit Lessee to contest the payment of the
Rent, or any other sums payable by Lessee to Lessor hereunder.
Lessor, at Lessee's expense, shall execute and deliver to Lessee
such authorizations and other documents as may reasonably be
required in any such contest and, if reasonably requested by
Lessee or if Lessor so desires and then at its own expense,
Lessor shall join as a party therein. Lessor shall do all things
reasonably requested by Lessee in connection with such action.
Lessee shall indemnify and save Lessor harmless against any
liability, cost or expense of any kind that may be imposed upon
Lessor in connection with any such contest and any loss resulting
therefrom.
ARTICLE 12
INSURANCE
---------
12.1 GENERAL INSURANCE REQUIREMENTS. During the Term of
this Lease, Lessee shall at all times keep the Leased Property,
and all property located in or on the Leased Property insured
with the kinds and amounts of insurance described below and
written by companies reasonably acceptable to Lessor authorized
to do insurance business in the state in which the Leased
Property is located. The policies must name Lessor as an
additional insured and losses shall be payable to Lessor and/or
Lessee as provided in Article XIII. In addition, upon notice to
Lessee of the identity of the Facility Mortgagee, the policies
shall name as an additional insured the holder ("Facility
Mortgagee") of any mortgage, deed of trust or other security
agreement securing any Encumbrance placed on the Leased Property
or any part thereof in accordance with the provisions of Article
XXXII ("Facility Mortgage"), if any, by way of a standard form of
mortgagee's loss payable endorsement. Any loss adjustment in
excess of $100,000.00 shall require the written consent of Lessor
and each affected Facility Mortgagee. Evidence of insurance
shall be deposited with Lessor and, if requested, with any
Facility Mortgagee(s). If any provision of any Facility Mortgage
which constitutes a first lien on the Leased Property requires
deposits of insurance to be made with such Facility Mortgagee,
Lessee shall either pay to Lessor monthly the amounts required
and Lessor shall transfer such amounts to such Facility Mortgagee
or, pursuant to written direction by Lessor, Lessee shall make
such deposits directly with such Facility Mortgagee. The
policies on the Leased Property, including the Leased
Improvements, the Fixtures and the Personal Property, shall
insure against the following risks:
(a) Loss or damage by fire, vandalism and malicious
mischief, extended coverage perils commonly known as "All Risk"
and all physical loss perils, including sprinkler leakage and
business interruption, in an amount not less than 100% of the
then Full Replacement Cost thereof (as defined below in Section
12.2) after deductible with a replacement cost endorsement
sufficient to prevent Lessee from becoming a co-insurer together
with an agreed value endorsement;
(b) Loss or damage by explosion of steam boilers, pressure
vessels or similar apparatus now or hereafter installed in the
Facility, in such limits with respect to any one accident as may
be reasonably requested by Lessor from time to time;
(c) Loss or damage by hurricane in the amount of the Full
Replacement Cost, after deductible;
(d) Loss of rental under a rental value insurance policy
covering risk of loss during the first 12 months of
reconstruction necessitated by the occurrence of any of the
hazards described in Sections 12.1(a), 12.1(b) or 12.1 (c), in an
amount sufficient to prevent Lessee from becoming a co-insurer;
provided that in the event that Lessee shall not be in default
hereunder and Lessor shall receive any proceeds from such rental
insurance which, when added to rental amounts received with
respect to the applicable time period, exceed the amount of
rental owed by Lessee hereunder, Lessor shall immediately pay
such excess to Lessee;
(e) Claims for personal injury or property damage under a
policy of comprehensive general public liability insurance
including insurance against assumed or contractual liability
including indemnities under this Lease, with amounts not less
than $5,000,000.00 per occurrence in respect of bodily injury and
death and $10,000,000.00 for property damage; provided that if it
becomes customary for tenants occupying similar buildings in the
same City where the Leased Property is located to be required to
provide liability coverage with higher limits than the foregoing,
then Lessee shall provide Lessor with an insurance policy with
coverage limits that are not less than such customary limits; and
(f) Flood (when the Facility other than the parking area is
located in whole or in part within a designated 100-year flood
plain area) and such other hazards and in such amounts as may be
customary for comparable properties in the area and if available
from insurance companies authorized to do business in the state
in which the Leased Property is located.
12.2 REPLACEMENT COST. The term "Full Replacement Cost" as
used herein shall mean the actual replacement cost of the
Facility from time to time, including increased cost of
construction endorsement, less exclusions provided in the normal
fire insurance policy. In the event Lessor or Lessee believes
that the Full Replacement Cost has increased or decreased at any
time during the Term, it shall have the right at its own expense
to have such Full Replacement Cost redetermined by the insurance
company which is then providing the largest amount of casualty
insurance carried on the Leased Property, hereinafter referred to
as the "impartial appraiser". The party desiring to have the
Full Replacement Cost so redetermined shall forthwith, on receipt
of such determination by the impartial appraiser, give written
notice thereof to the other party hereto. The determination of
such impartial appraiser shall be final and binding on the
parties hereto, and Lessee shall forthwith increase, or may
decrease, the amount of the insurance carried pursuant to this
Article to the amount so determined by the impartial appraiser.
12.3 ADDITIONAL INSURANCE. In addition to the insurance
described above, but subject to the provisions of clause (d) in
Article XXXIII, Lessee shall maintain such additional insurance
as may be reasonably required from time to time by any Facility
Mortgagee which is consistent with insurance coverage for similar
properties in the city, county and state where the Leased
Property is located, or required pursuant to any applicable Legal
Requirement, and shall at all times maintain or cause to be
maintained adequate worker's compensation insurance coverage for
all persons employed by Lessee on the Leased Property, in
accordance with all applicable Legal Requirements.
12.4 WAIVER OF SUBROGATION. All insurance policies carried
by either party covering the Leased Property, the Fixtures, the
Facility and/or the Personal Property, including contents, fire
and casualty insurance, shall expressly waive any right of
subrogation on the part of the insurer against the other party.
The parties hereto agree that their policies will include such a
waiver clause or endorsement so long as the same is obtainable
without extra cost, and in the event of such an extra charge the
other party, at its election, may request and pay the same, but
shall not be obligated to do so.
12.5 FORM OF INSURANCE. All of the policies of insurance
referred to in this Section shall be written in form reasonably
satisfactory to Lessor by insurance companies reasonably
satisfactory to Lessor; provided that the deductibles for
insurance required by Sections 12.1(a), 12.1(b) and 12.1 (d)
shall be no greater than $50,000.00, the deductible for coverage
required by Section 12.1(c) shall be no greater than two percent
of the Full Replacement Cost and the deductible for coverage
required by Section 12.1(e) shall be no greater than $100,000.00.
Lessee shall pay all premiums therefor, and deliver such policies
or certificates thereof to Lessor prior to their effective date
(and, with respect to any renewal policy, at least 30 days prior
to the expiration of the existing policy). In the event of the
failure of Lessee to effect such insurance in the names herein
called for or to pay the premiums therefor, or to deliver such
policies or certificates thereof to Lessor at the times required,
Lessor shall be entitled, but shall have no obligation, to enact
such insurance and pay the premiums therefor, which premiums
shall be repayable by Lessee to Lessor upon written demand
therefor, and failure to repay the same shall constitute an Event
of Default within the meaning of Section 15.1(c). Each insurer
mentioned in this Section shall agree, by endorsement on the
policy or policies issued by it, or by independent instrument
furnished to Lessor, that it will give to Lessor prior written
notice before the policy or policies in question shall be
altered, allowed to expire or canceled.
12.6 CHANGE IN LIMITS. In the event that Lessor shall at
any time reasonably and in good faith believe the limits of the
personal injury, property damage or general public liability
insurance then carried to be insufficient or in the event the
Facility Mortgagee requires additional insurance coverage, the
parties shall endeavor to agree on the proper and reasonable
limits for such insurance to be carried and such insurance shall
thereafter be carried with the limits thus agreed on until
further change pursuant to the provisions of this Section. If
the parties shall be unable to agree thereon, the proper and
reasonable limits for such insurance shall be determined by an
impartial third party selected by the parties the costs of which
shall be divided equally between the parties. Such
redeterminations, whether made by the parties or by arbitration,
shall be made no more frequently than every year.
12.7 BLANKET POLICY. Notwithstanding anything to the
contrary contained in this Section, Lessee's obligations to carry
the insurance provided for herein may be brought within the
coverage of a so-called blanket policy or policies of insurance
carried and maintained by Lessee; provided that the coverage
afforded Lessor will not be reduced or diminished or otherwise be
different from that which would exist under separate policies
meeting all other requirements of this Lease; and provided
further that the requirements of this Article XII are otherwise
satisfied.
12.8 NO SEPARATE INSURANCE. Without the prior written
consent of Lessor, Lessee shall not, on Lessee's own initiative
or pursuant to the request or requirement of any third party,
take out separate insurance concurrent in form or contributing in
the event of loss with that required in this Article XII to be
furnished by, or which may reasonably be required by a Facility
Mortgagee to be furnished by, Lessee, or increase the amounts of
any then-existing insurance required under this Article XII by
securing an additional policy or additional policies, unless all
parties having an insurable interest in the subject matter of the
insurance, including in all cases Lessor and all Facility
Mortgagees, are included therein as additional insureds and the
loss is payable under said insurance in the same manner as losses
are required to be payable under this Lease. Lessee shall
immediately notify Lessor of the taking out of any such separate
insurance or of the increasing of any of the amounts of the then-
existing insurance required under this Article XII by securing an
additional policy or additional policies.
12.9 INSURANCE FOR CONTRACTORS. If Lessee shall engage or
cause to be engaged any contractor to perform work on the Leased
Property, Lessee shall require such contractor to carry and
maintain insurance coverage comparable to the foregoing
requirements, at no expense to Lessor; provided that in cases
where such coverage is excessive in relation to the work being
done, Lessee may allow any such contractor to carry or maintain
alternative coverage in reasonable amounts upon Lessor's prior
written consent, which shall not be unreasonably withheld.
ARTICLE 13
FIRE AND CASUALTY
-----------------
13.1 INSURANCE PROCEEDS. All proceeds payable by reason of
any loss or damage to the Leased Property or any portion thereof,
and insured under any policy of insurance required by Article XII
of this Lease shall be paid to Lessor and held by Lessor in trust
(subject to the provisions of Section 13.7) and shall be made
available for reconstruction or repair, as the case may be, of
any damage to or destruction of the Leased Property, or any
portion thereof, and shall be paid out by Lessor from time to
time for the reasonable cost of such reconstruction or repair in
accordance with this Article XIII after Lessee has expended an
amount equal to or exceeding the deductible under any applicable
insurance policy. Any excess proceeds of insurance remaining
after the completion of the restoration or reconstruction of the
Leased Property shall be retained by Lessee free and clear upon
completion of any such repair and restoration except as otherwise
specifically provided below in this Article XIII; provided that
in the event neither Lessor nor Lessee is required or elects to
repair or restore the Leased Property, then all such insurance
proceeds shall be retained by Lessor. All salvage resulting from
any risk covered by insurance shall belong to Lessee, including
any salvage relating to Capital Additions paid for by Lessee.
13.2 RECONSTRUCTION IN THE EVENT OF DAMAGE OR DESTRUCTION
COVERED BY INSURANCE.
(a) Except as provided in Section 13.7, if during the Term,
the Facility is totally or partially destroyed from a risk
covered by the insurance described in Article XII and the
Facility thereby is rendered Unsuitable for its Primary Intended
Use, Lessee shall have the option, by giving notice to Lessor
within 60 days following the date of such destruction, to (i)
apply all proceeds payable with respect thereto to restore the
Facility to substantially the same condition as existed
immediately before the damage or destruction, or (ii) offer to
acquire the Leased Property from Lessor for a purchase price
equal to the Minimum Purchase Price of the Leased Property
immediately prior to such damage or destruction. In the event
Lessor does not accept Lessee's offer to so purchase the Leased
Property within 30 days after the date of such offer, Lessee may
either (a) by giving notice to Lessor within 30 days after
receipt of Lessor's notice, withdraw its offer to purchase the
Leased Property and proceed to restore the Facility to
substantially the same condition as existed immediately before
the damage or destruction, or (b) terminate the offer and this
Lease upon 30 days' prior written notice to Lessor, in which case
the insurance proceeds shall be the sole property of Lessor.
(b) Except as provided in Section 13.7, if during the Term,
the Facility is partially destroyed from a risk covered by the
insurance described in Article XII, but the Facility is not
thereby rendered Unsuitable for its Primary Intended Use, Lessee
shall restore the Facility to substantially the same condition as
existed immediately before the damage or destruction. Such
damage or destruction shall not terminate this Lease; provided
that if Lessee cannot within a reasonable time obtain all
necessary governmental approvals, including building permits,
licenses, conditional use permits and any certificates of need,
after diligent efforts to do so, in order to be able to perform
all required repair and restoration work and to operate the
Facility for its Primary Intended Use in substantially the same
manner as immediately prior to such damage or destruction, Lessee
may offer to purchase the Leased Property for a purchase price
equal to the Minimum Purchase Price of the Leased Property
immediately prior to such damage or destruction. In the event
Lessor does not accept Lessee's offer to so purchase the Leased
Property within 30 days after receipt of the offer to purchase
described in the preceding sentence, Lessee may either (a)
withdraw its offer to purchase the Leased Property and proceed to
restore the Facility, to the extent possible, to substantially
the same condition as existed immediately before the partial
destruction, or (b) terminate the offer and this Lease by written
notice to Lessor, in which case any insurance proceeds shall be
the sole property of Lessor.
(c) In the event Lessor accepts Lessee's offer to purchase
the Leased Property, this Lease shall terminate upon payment of
the purchase price and execution and delivery of all appropriate
documentation. In such event Lessor shall remit to Lessee, or
allow Lessee a credit toward the purchase price in an amount
equal to, all insurance proceeds received by Lessor with respect
to the Facility.
13.3 RECONSTRUCTION IN THE EVENT OF DAMAGE OR DESTRUCTION
NOT COVERED BY INSURANCE. Except as provided in Section 13.7, if
during the Term the Facility is totally or materially destroyed
from a risk (including earthquake) not covered by the insurance
described in Article XII, whether or not such damage or
destruction renders the Facility Unsuitable for Its Primary
Intended Use, Lessee shall either (a) restore the Facility to
substantially the same condition it was in immediately before
such damage or destruction and such damage or destruction shall
not terminate this Lease, or (b) acquire the Leased Property from
Lessor for a purchase price equal to the Minimum Purchase Price
immediately prior to such damage or destruction.
13.4 LESSEE'S PROPERTY. Lessee shall use any insurance
proceeds payable by reason of any loss of or damage to any of the
Personal Property to restore such Personal Property to the Leased
Property with items of substantially equivalent value to the
items being replaced.
13.5 RESTORATION OF LESSEE'S PROPERTY. If Lessee is
required or elects to restore the Facility as provided in
Sections 13.2 or 13.3, Lessee shall also restore the Personal
Property related thereto as required by Section 13.4 and all
Capital Additions paid for or financed by Lessor. Insurance
proceeds payable by reason of damage to Capital Additions paid
for or financed by Lessor shall be paid to Lessor and Lessor
shall hold such insurance proceeds in trust to pay the cost of
repairing or replacing such Capital Additions in the event Lessee
does not terminate this Lease or purchase the Leased Property
pursuant to Section 13.2.
13.6 NO ABATEMENT OF THE RENT. This Lease shall remain in
full force and effect and Lessee's obligation to make rental
payments and to pay all other charges required by this Lease
shall remain unabated during any period required for repair and
restoration.
13.7 DAMAGE NEAR END OF TERM. Notwithstanding any
provisions of Sections 13.2 or 13.3 to the contrary, if damage to
or destruction of the Facility occurs during the last 12 months
of the Term, and if such damage or destruction cannot be fully
repaired and restored within the lesser of (i) six months or (ii)
the period remaining in the Term immediately following the date
of loss, then either party shall have the right to terminate this
Lease by giving notice of termination to the other within 30 days
after the date of such damage or destruction, in which event
Lessor shall be entitled to retain the insurance proceeds and
Lessee shall pay to Lessor on demand the amount of any deductible
or uninsured loss arising in connection therewith; provided that
any such notice given by Lessor shall be void and of no force and
effect if Lessee exercises an available option to extend the Term
for one Extended Term, or one additional Extended Term, as the
case may be, within 30 days following receipt of such termination
notice.
13.8 PURCHASE. In the event Lessee purchases the Leased
Property pursuant to the terms of this Article, this Lease shall
terminate upon payment of the purchase price and execution and
delivery of all documentation in accordance with Article XVII.
In the event any insurance proceeds have been paid to Lessor,
Lessor will allow Lessee a credit toward the purchase price in an
amount equal to all such insurance proceeds. In the event the
purchase of the Leased Property is consummated before any such
proceeds are paid to Lessor, Lessee will pay the full purchase
price to Lessor and Lessor will remit any such insurance proceeds
within 15 days of the receipt thereof.
13.9 WAIVER. Lessee hereby knowingly and expressly waives
any statutory or common law rights of termination which may arise
by reason of any damage or destruction of the Facility.
ARTICLE 14
CONDEMNATION
------------
14.1 PARTIES' RIGHTS AND OBLIGATIONS. If during the Term
there is any Taking of all or any part of the Leased Property or
any interest in this Lease by Condemnation, the rights and
obligations of the parties shall be determined by this Article
XIV.
14.2 TOTAL TAKING. If there is a Taking of all of the
Leased Property by Condemnation, this Lease shall terminate on
the Date of Taking, and the Minimum Rent and all Additional
Charges paid or payable hereunder shall be apportioned and paid
to the Date of Taking.
14.3 PARTIAL TAKING. If there is a Taking of a portion of
the Leased Property by Condemnation such that the Facility is not
thereby rendered Unsuitable for Its Primary Intended Use, this
Lease shall remain in effect. If, however, the Facility is
thereby rendered Unsuitable for Its Primary Intended Use, Lessee
shall have the right within 60 days of the Date of Taking (a) to
take such proceeds of any Award as shall be necessary and restore
the Facility, at its own expense, to the extent possible, to
substantially the same condition as existed immediately before
the partial Taking, or (b) to offer to acquire the Leased
Property from Lessor for a purchase price equal to the Minimum
Purchase Price of the Leased Property immediately prior to such
partial Taking, in which event this Lease shall terminate upon
payment of the purchase price and Lessee shall obtain and retain
the proceeds of the related Award. Lessee shall exercise its
option by giving Lessor notice thereof within 60 days after
Lessee receives notice of the Taking. In the event Lessor does
not accept Lessee's offer to so purchase the Leased Property
within 30 days after receipt of the notice described in the
preceding sentence, Lessee may either (a) withdraw its offer to
purchase the Leased Property and proceed to restore the Facility,
to the extent possible, to substantially the same condition as
existed immediately before the partial Taking, or (b) terminate
the offer and this Lease by written notice to Lessor.
14.4 RESTORATION. If there is a partial Taking of the
Leased Property and this Lease remains in full force and effect
pursuant to Section 14.3, Lessee shall accomplish all necessary
restoration in order that the Leased Property may continue to be
used for its Primary Intended Use.
14.5 AWARD DISTRIBUTION. In the event Lessee purchases the
Leased Property pursuant to Section 14.3, the entire Award shall
belong to Lessee and Lessor agrees to assign to Lessee all of its
rights thereto. In any other event, the entire Award shall
belong to and be paid to Lessor; provided that, if this Lease is
terminated without Lessee's purchase of the Facility, then Lessee
shall be entitled to receive from the Award, if and to the extent
there is included in such Award any sum attributable to the
Capital Additions to the Facility for which Lessee would be
entitled to reimbursement at the end of the Term pursuant to the
provisions of Section 9.2(b), plus any sum attributable to the
Lessee's Personal Property and any reasonable removal and
relocation costs included in the Award. If Lessee is required or
elects to restore the Facility, Lessor agrees that its portion of
the Award shall be used for such restoration and it shall hold
such portion of the Award in trust, for application to the cost
of the restoration.
14.6 TEMPORARY TAKING. The Taking of the Leased Property,
or any part thereof, by military or other public authority shall
constitute a Taking by Condemnation only when the use and
occupancy by the Taking authority has continued for longer than
six months. During any such six-month period all the provisions
of this Lease shall remain in full force and effect and the Rent
shall not be abated or reduced during such period of Taking;
provided that to the extent any compensation is paid by the
Taking authority as a result of such temporary Taking, Lessee
will retain such compensation.
14.7 PURCHASE OR SUBSTITUTION. In the event Lessor accepts
any offer by Lessee to purchase the Leased Property, this Lease
shall terminate upon payment of the purchase price and execution
and delivery of all appropriate documentation in accordance with
Article XVII.
ARTICLE 15
DEFAULT
-------
15.1 EVENTS OF DEFAULT. The occurrence and continuation of
any one or more of the following events shall constitute events
of default (individually, an "Event of Default" and,
collectively, "Events of Default") hereunder:
(a) An event of default shall occur under any other lease
between Lessor or any of its Affiliates and Lessee or any of its
Affiliates (collectively, the "Affiliated Leases"), or
(b) Lessee shall fail to make a payment of the Rent payable
by Lessee under this Lease when the same becomes due and payable
and such failure continues for a period of ten calendar days
after written notice from Lessor to Lessee, or
(c) Lessee shall fail to observe or perform any other
material term, covenant or condition of this Lease or any
document executed in connection herewith and such failure is not
cured by Lessee within a period of 30 days after receipt by
Lessee of notice thereof from Lessor, unless such failure cannot
with due diligence be cured within a period of 30 days, in which
case such failure shall not be deemed to continue if Lessee
proceeds promptly and with due diligence to cure the failure and
diligently completes the curing thereof (as soon as reasonably
possible), or
(d) Lessee shall:
(i) admit in writing its inability to pay its
debts generally as they become due,
(ii) file a petition in bankruptcy or a petition
to take advantage of any insolvency law,
(iii) make an assignment for the benefit of
its creditors,
(iv) consent to the appointment of a receiver of
itself or of the whole or any substantial part of its
property, or
(v) file a petition or answer seeking
reorganization or arrangement under the Federal
bankruptcy laws or any other applicable law or statute
of the United States of America or any state thereof,
or
(e) Lessee shall default beyond any applicable grace period
contained in one or more major credit facilities which by their
terms would permit an outstanding balance equal to or greater
than $5,000,000.00 in the aggregate to be accelerated and the
same shall be accelerated by the lenders or other applicable
parties, or
(f) Lessee [or Guarantor, if Lessee is not Grand Court
Lifestyles, Inc.] shall fail to maintain a Consolidated Net Worth
of at least $30,000,000.00; provided, however, Lessee [or
Guarantor] shall complete an initial public offering of equity
securities, then Lessee [or Guarantor] shall fail to maintain a
Consolidated Net Worth of at least 75% of its Consolidated Net
Worth that existed immediately after the completion of the
initial public offering, but not less than $30,000,000.00 or
(g) Commencing on the first day of the 22nd month after the
Commencement Date, Lessee shall fail to maintain a Coverage Ratio
of at least 1.25 for more than three consecutive months unless
Lessee shall have cured the foregoing default pursuant to Section
15.4.
15.2 REMEDIES. If an Event of Default shall have occurred,
Lessor may, at its election, then or at any time thereafter but
prior to the exercise of any option to purchase available to
Lessee hereunder, pursue any one or more of the following
remedies, in addition to any remedies which may be permitted by
law or by other provisions of this Lease, without further notice
or demand:
(a) Without any notice or demand whatsoever, Lessor may
take any one or more actions permissible at law to ensure
performance by Lessee of Lessee's covenants and obligations under
this Lease. In this regard, it is agreed that if Lessee abandons
or vacates the Leased Property, Lessor may enter upon and take
possession of such Leased Property in order to protect it from
deterioration and continue to demand from Lessee the monthly
rentals and other charges provided in this Lease. Lessor shall
use reasonable efforts to relet but shall have no absolute
obligation to relet. If Lessor relets the Leased Property, such
action by Lessor shall not be deemed as an acceptance of Lessee's
surrender of the Leased Property unless Lessor expressly notifies
Lessee of such acceptance in writing, Lessee hereby acknowledging
that Lessor shall otherwise be reletting as Lessee's agent. It
is further agreed in this regard that in the event of any Event
of Default described in this Article XV, Lessor shall have the
right to enter upon the Leased Property and do whatever Lessee is
obligated to do under the terms of this Lease. Lessee agrees to
reimburse Lessor on demand for any reasonable expenses which
Lessor may incur in thus effecting compliance with Lessee's
obligations under this Lease, and further agrees that Lessor
shall not be liable for any damages resulting to Lessee from such
action, except as may result from Lessor's negligence or willful
misconduct.
(b) Lessor may terminate this Lease by written notice to
Lessee, in which event Lessee shall immediately surrender the
Leased Property to Lessor, and if Lessee fails to do so, Lessor
may, without prejudice to any other remedy which Lessor may have
for possession or arrearage in rent (including any interest which
may have accrued pursuant to Section 2.3 of this Lease or
otherwise), enter upon and take possession of the Leased Property
and expel or remove Lessee and any other person who may be
occupying said premises or any part thereof other than Tenants
pursuant to Tenant Leases. In addition, Lessee agrees to pay to
Lessor on demand the amount of all loss and damage which Lessor
may suffer by reason of any termination effected pursuant to this
subsection (b), said loss and damage to be determined, at
Lessor's option, by either of the following alternative measures
of damages:
(i) Although Lessor shall be under no absolute
obligation to attempt and shall be obligated only to
use reasonable efforts, to relet the Leased Property,
until the Leased Property is relet Lessee shall pay to
Lessor on or before the first day of each calendar
month the monthly rentals and other charges provided in
this Lease. After the Leased Property has been relet
by Lessor, Lessee shall pay to Lessor on the 10th day
of each calendar month the excess, if any, of the
monthly rentals and other charges provided in this
Lease for the preceding calendar month over the monthly
rentals and other charges actually collected by Lessor
for such month. If it is necessary for Lessor to bring
suit in order to collect any deficiency, Lessor shall
have a right to allow such deficiencies to accumulate
and to bring an action on several or all of the accrued
deficiencies at one time. Any such suit shall not
prejudice in any way the right of Lessor to bring a
similar action for any subsequent deficiency or
deficiencies. Any amount collected by Lessor from
subsequent tenants for any calendar month in excess of
the monthly rentals and other charges provided in this
Lease shall be credited to Lessee in reduction of
Lessee's liability for any calendar month for which the
amount collected by Lessor will be less than the
monthly rentals and other charges provided in this
Lease, but Lessee shall have no right to such excess
other than the above described credit.
(ii) When Lessor desires, Lessor may demand a
final settlement not to exceed the Minimum Purchase
Price at the time of such final settlement. Upon
demand for a final settlement, Lessor shall have a
right to, and Lessee hereby agrees to pay, the
difference between the total of all monthly rentals and
other charges provided in this Lease for the remainder
of the Term and the reasonable rental value of the
Leased Property for such period (including a reasonable
time to relet the Leased Property), as determined
pursuant to the provisions of Article XXVIII hereof,
such difference to be discounted to present value at a
rate equal to the lowest rate of capitalization
(highest present worth) reasonably consistent with
industry standards at the time of such determination
and allowed by applicable law. In the event that the
final settlement equals the Minimum Purchase Price,
then Lessor shall transfer the Leased Property to
Lessee pursuant to the terms of Article XVII.
The rights and remedies of Lessor hereunder are cumulative,
and pursuit of any of the above remedies shall not preclude
pursuit of any other remedies prescribed in other sections of
this Lease and any other remedies provided by law or equity.
Forbearance by Lessor to enforce one or more of the remedies
herein provided upon an Event of Default shall not be deemed or
construed to constitute a waiver of such Event of Default.
Exercise by Lessor of any one or more remedies shall not
constitute an acceptance of surrender of the Leased Property by
Lessee, it being understood that such surrender can be effected
only by the prior written agreement of Lessor and Lessee.
15.3 ADDITIONAL EXPENSES. In addition to payments required
pursuant to subsections (a) and (b) of Section 15.2 above, Lessee
shall compensate Lessor for all reasonable expenses incurred by
Lessor in repossessing the Leased Property (including any
increase in insurance premiums caused by the vacancy of the
Leased Property), all reasonable expenses incurred by Lessor in
reletting (including repairs, replacements, advertisements and
brokerage fees), all fees and expenses incurred by Lessor as a
direct or indirect result of any appropriate action by a Facility
Mortgagee, any expenses of Lessor incurred for the installation
of separate lines or meters for any public utilities not
previously metered separately from adjacent property of Lessee
and a reasonable allowance for Lessor's administrative efforts,
salaries and overhead attributable directly or indirectly to
Lessee's default and Lessor's pursuing the rights and remedies
provided herein and under applicable law. Notwithstanding the
foregoing, Lessee's obligation to compensate Lessor for the
foregoing items shall be decreased by the excess of any rent
received by Lessor directly from Tenants pursuant to the Tenant
Leases over and above the Rent due hereunder.
15.4 PAYMENT TO REDUCE MINIMUM RENT. In the event of the
occurrence of an Event of Default pursuant to Section 15.1(g)
above, Lessee may make a cash payment to Lessor to reduce the
Project Amount, in which case the Minimum Rent shall be
recalculated pursuant to Section 2.1(a); provided that Lessee
shall make a cash payment only in an amount necessary to increase
the Coverage Ratio to 1.25.
15.5 WAIVER. If this Lease is terminated pursuant to law or
the provisions of this Article XV, Lessee waives, to the extent
permitted by applicable law, (a) any right of redemption, reentry
or repossession and (b) the benefit of any laws now or hereafter
in force exempting property from liability for rent or for debt.
15.6 APPLICATION OF FUNDS. All payments otherwise payable
to Lessee which are received by Lessor under any of the
provisions of this Lease during the existence or continuance of
any Event of Default shall be applied to Lessee's obligations in
the order which Lessor may reasonably determine or as may be
prescribed by the laws of the state in which the Facility is
located.
15.7 NOTICES BY LESSOR. The provisions of this Article XV
concerning notices shall be liberally construed insofar as the
contents of such notices are concerned, and any such notice shall
be sufficient if it shall generally apprise Lessee of the nature
and approximate extent of any default.
ARTICLE 16
LESSOR'S RIGHT TO CURE
----------------------
If Lessee, without the prior written consent of Lessor,
shall fail to make any payment, or to perform any act required to
be made or performed under this Lease and to cure the same within
the relevant time periods provided in Section 15.1, Lessor,
without waiving or releasing any obligation or Event of Default,
may (but shall be under no obligation to) make such payment or
perform such act for the account and at the expense of Lessee,
and may, to the extent permitted by law, enter upon the Leased
Property for such purpose and take all such action thereon as, in
Lessor's opinion, may be necessary or appropriate therefor. No
such entry shall be deemed an eviction of Lessee. All sums so
paid by Lessor, together with a late charge thereon (to the
extent permitted by law) at the Overdue Rate from the date on
which such sums or expenses are paid or incurred by Lessor, and
all costs and expenses (including reasonable attorneys' fees and
expenses, in each case, to the extent permitted by law) so
incurred shall be paid by Lessee to Lessor on demand. The
obligations of Lessee and rights of Lessor contained in this
Article shall survive the expiration or earlier termination of
this Lease.
ARTICLE 17
PURCHASE OF THE LEASED PROPERTY
-------------------------------
In the event Lessee purchases the Leased Property from
Lessor pursuant to any of the terms of this Lease, Lessor shall,
upon receipt from Lessee of the applicable purchase price (after
credit for the balance of the Capital Replacement Account or the
proceeds of any Taking or any casualty), together with full
payment of any unpaid Rent due and payable with respect to any
period ending on or before the date of the purchase and any other
amounts owing to Lessor hereunder, deliver to Lessee an
appropriate special warranty deed (in substantially the same form
used to convey the Leased Property to Lessor) and any other
documents reasonably requested by Lessee to convey the interest
of Lessor in and to the Leased Property to Lessee, and such other
standard documents usually and customarily prepared in connection
with such transfers, free and clear of all encumbrances other
than (a) those that Lessee has agreed hereunder to pay or
discharge, (b) those mortgage liens, if any, which Lessee has
agreed in writing to accept and to take title subject to, (c) any
other Encumbrances permitted to be imposed on the Leased Property
under the provisions of Article XXXII which are assumable at no
cost to Lessee, and (d) any matters affecting the Leased Property
on or as of the Commencement Date. The difference between the
applicable purchase price and the total of the encumbrances
assigned or taken subject to shall be paid in cash to Lessor, or
as Lessor may direct, in federal or other immediately available
funds except as otherwise mutually agreed by Lessor and Lessee.
The closing of any such sale shall be contingent upon and subject
to Lessee obtaining all required governmental consents and
approvals for such transfer. If such sale shall fail to be
consummated by reason of the inability of Lessee to obtain all
such approvals and consents, any options to extend the Term which
otherwise would have expired during the period from the date when
Lessee elected or became obligated to purchase the Leased
Property until Lessee's inability to obtain the approvals and
consents is confirmed shall be deemed to remain in effect for 30
days after the end of such period. The closing with respect to
any such sale shall be appropriately timed to accommodate the
determination of the Minimum Purchase Price in accordance with
Article XXVIII. All expenses of such conveyance, including the
cost of title examination or standard coverage title insurance,
reasonable attorneys' fees incurred by Lessor in connection with
such conveyance, transfer taxes and recording fees shall be paid
by Lessee.
ARTICLE 18
HOLDING OVER
------------
If Lessee shall for any reason remain in possession of the
Leased Property after the expiration of the Term or any earlier
termination of the Term hereof, such possession shall be as a
tenancy at will during which time Lessee shall pay as rental each
month an amount equal to the sum of (a) 150% of the aggregate of
1/12 of the aggregate Minimum Rent payable with respect to the
last complete year prior to the expiration of the Term, plus (b)
all Additional Charges accruing during such month, plus (c) all
other sums, if any, payable pursuant to the provisions of this
Lease with respect to the Leased Property. During such period of
tenancy, Lessee and Lessor shall be obligated to perform and
observe all of the terms, covenants and conditions of this Lease
and to continue its occupancy and use of the Leased Property.
Nothing contained herein shall constitute the consent, express or
implied, of Lessor to the holding over of Lessee after the
expiration or earlier termination of this Lease.
ARTICLE 19
OPTION TO PURCHASE; ABANDONMENT
-------------------------------
19.1 OPTION TO PURCHASE. For the independent consideration
of $10.00, receipt of which is hereby acknowledged by Lessor,
Lessor hereby grants to Lessee an option to purchase the Leased
Property after the fourth anniversary of the Commencement Date on
the following terms and conditions. In the event that Lessor has
not terminated this Lease pursuant to the provisions of Section
15.2 or otherwise Lessee may after the fourth anniversary of the
Commencement Date give notice to Lessor of Lessee's exercise of
its option to purchase the Leased Property for a purchase price
equal to the Minimum Purchase Price. Notwithstanding anything
herein to the contrary, this Lease shall not be terminated by
Lessor pursuant to the provisions of Sections 15.2 or otherwise
until Lessor has provided Lessee with 21 days prior written
notice of such termination. The option to purchase in this
Section 19.1 is in addition to all other rights and options
herein to purchase the Leased Property.
19.2 DISCONTINUANCE OF OPERATIONS ON THE LEASED PROPERTY.
If Lessee has discontinued use of the Leased Property for the
Primary Intended Use for 90 consecutive days, all as set forth in
an Officer's Certificate delivered to Lessor, except due to a
casualty loss or with Lessor's prior written consent pursuant to
Article IX or otherwise, Lessee, if Lessor has not terminated
this Lease prior to such date as provided in Section 15.1, will
offer to purchase the Leased Property for the Minimum Purchase
Price on the first Payment Date occurring not less than 120 days
after the date of such Officer's Certificate.
19.3 CONVEYANCE OF LEASED PROPERTY. In the event Lessee
elects to purchase the Leased Property pursuant to Sections 19.1
or 19.2, then on the first Payment Date occurring not less than
120 days (subject to extension by revision of appraisal delays,
if any) after the date of the Officer's Certificate referred to
in Section 19.2 or the written notice referred to in Section
19.1, Lessor shall, upon receipt from Lessee of the Minimum
Purchase Price, as of the date of such purchase and all Rent and
or other sums then due and payable under this Lease (excluding
any installment of Minimum Rent due on such Payment Date), convey
the Leased Property to Lessee on such date in accordance with the
mechanism set forth in Article XVII and this Lease shall
thereupon terminate as to the Leased Property.
ARTICLE 20
RESERVED
--------
ARTICLE 21
RISK OF LOSS
------------
Except as otherwise provided in this Lease, during the Term
of this Lease, the risk of loss or of decrease in the enjoyment
and beneficial use of the Leased Property in consequence of the
damage or destruction thereof by fire, the elements, casualties,
thefts, riots, wars or otherwise, or in consequence of
foreclosures, attachments, levies or executions (other than such
consequences by Lessor and those claiming from, through or under
Lessor) is assumed by Lessee and, Lessor shall in no event be
answerable or accountable therefor nor shall any of the events
mentioned in this Section entitle Lessee to any abatement of the
Rent except as specifically provided in this Lease, unless caused
by Lessor's negligence or willful misconduct.
ARTICLE 22
INDEMNIFICATION
---------------
Notwithstanding the existence of any insurance or self
insurance provided for in Article XII, and without regard to the
policy limits of any such insurance or self insurance, Lessee
will protect, indemnify, save harmless and defend Lessor from and
against all liabilities, obligations, claims, damages, penalties,
causes of action, costs and expenses (including reasonable
attorneys' fees and expenses), to the extent permitted by law,
imposed upon or incurred by or asserted against Lessor by reason
of: (a) any accident, injury to or death of persons or loss to
property occurring on or about the Leased Property, including any
claims of malpractice, (b) any use, misuse, no use, condition,
maintenance or repair by Lessee of the Leased Property, (c) any
Impositions (which are the obligations of Lessee to pay pursuant
to the applicable provisions of this Lease), (d) any failure on
the part of Lessee to perform or comply with any of the terms of
this Lease, (e) the non-performance of any of the terms and
provisions of any and all existing and future subleases of the
Leased Property to be performed by Lessee as landlord thereunder
and (f) the violation of any Hazardous Materials Law (an
"Indemnified Claim"). Any amounts which become payable by Lessee
under this Section shall be paid within ten days after liability
therefor on the part of Lessor is finally determined by
litigation or otherwise (including the expiration of any time for
appeals) and, if not timely paid, shall bear interest (to the
extent permitted by law) at the Overdue Rate from the date of
such determination to the date of payment. Lessee, at its
expense, shall contest, resist and defend any such claim, action
or proceeding asserted or instituted against Lessor or may
compromise or otherwise dispose of the same as Lessee sees fit.
Lessor shall cooperate with Lessee in a reasonable manner to
permit Lessee to satisfy Lessee's obligations hereunder,
including the execution of any instruments or documents
reasonably requested by Lessee. Nothing herein shall be
construed as indemnifying Lessor or its agents for their own
negligent acts or omissions or willful misconduct. Lessee's
liability for a breach of the provisions of this Article shall
survive any termination of this Lease.
In case any Indemnified Claim is brought or threatened by
any third party against Lessor hereunder, Lessor shall promptly
notify Lessee in writing and Lessee shall assume defense thereof,
including the employment of counsel approved in writing by such
Lessor, which approval shall not be unreasonably withheld. In
addition, in case Lessor shall become aware of any facts which
might result in any such claim, demand or cause of action, Lessor
shall promptly notify Lessee thereof in writing, who shall have
the right to take such action as may be deemed reasonably
appropriate to resolve such matter. Lessor shall have the right
to employ separate counsel in any such third party action, but
the fees and expenses of such counsel shall be at the expense of
Lessor unless the employment of such counsel has been separately
authorized in writing Lessee or Lessee has failed to employ
counsel. Lessor shall cooperate fully in the defense any such
third party claim, demand and cause of action and shall engage in
no conduct prejudicial to the defense thereof. Lessee shall not
be liable for any settlement of any such party claim, demand or
cause of action effected without its consent, but if settled with
consent of Lessee or if there shall be a final judgment for the
plaintiff in any such third action, Lessee shall indemnify and
hold harmless Lessor from and against any loss or liability by
reason of such settlement or judgment.
ARTICLE 23
SUBLETTING AND ASSIGNMENT
-------------------------
23.1 SUBLETTING AND ASSIGNMENT. Subject to the rights of
Tenants under existing Tenant Leases and subject to the
provisions of Section 23.3 below and any other express conditions
or limitations set forth herein, Lessee may, without the consent
of Lessor, sublet all or any part of the Leased Property
consistently with the Primary Intended Use. Lessor shall not
unreasonably withhold its consent to any other or further
subletting or assignment; provided that (a) in the case of a
subletting, the sublessee shall comply with the provisions of
Section 23.2, (b) in the case of an assignment, the assignee
shall assume in writing and agree to keep and perform all of the
terms of this Lease on the part of Lessee to be kept and
performed and shall be and become jointly and severally liable
with Lessee for the performance thereof, (c) an original
counterpart of each such sublease and assignment and assumption,
duly executed by Lessee and such sublessee or assignee, as the
case may be, in form and substance reasonably satisfactory to
Lessor, shall be delivered promptly to Lessor, and (d) in case of
either an assignment or subletting, Lessee shall remain primarily
liable, as principal rather than as surety, for the prompt
payment of the Rent and for the performance and observance of all
of the covenants and conditions to be performed by Lessee
hereunder. In addition to Lessee's rights to sublet and assign
as provided in this section above, Lessee shall also have the
right (upon Lessor's prior consent, which consent shall not
unreasonably be withheld) to enter into Tenant Leases which
extend beyond the Term of this Lease. To the extent that any
such Tenant Leases extend beyond the Term of this Lease, Lessor
shall receive the rents from, and be responsible for any
obligations on the part of the landlord or lessor under such
Tenant Leases. Any and all such Tenant Leases shall, to the
extent applicable, be subject to the provisions of this Section
and Section 23.2.
23.2 NON-DISTURBANCE, SUBORDINATION AND ATTORNMENT. Except
for existing Tenant Leases, Lessee shall insert in each sublease
permitted under Section 23.1 provisions to the effect that (a)
such sublease is subject and subordinate to all of the terms and
provisions of this Lease and to the rights of Lessor hereunder,
(b) in the event this Lease shall terminate before the expiration
of such sublease, the sublessee thereunder will, at Lessor's
option, attorn to Lessor and waive any right the sublessee may
have to terminate the sublease or to surrender possession
thereunder as a result of the termination of this Lease and (c)
in the event the sublessee receives a written notice from Lessor
or Lessor's assignees, if any, stating that Lessee is in default
under this Lease, the sublessee, shall thereafter be obligated to
pay all rentals accruing under said sublease directly to the
party giving such notice, or as such party may direct. All
rentals received from the sublessee by Lessor or Lessor's
assignees, if any, shall be credited against amounts owing by
Lessee under this Lease. Lessor agrees that notwithstanding any
default, termination, expiration, sale, entry or other act or
omission of Lessee pursuant to the terms of this Lease, or at law
or in equity, Tenant's possession shall not be disturbed unless
such possession may otherwise be terminated pursuant to the terms
of the applicable Tenant Lease. Lessor hereby agrees, upon
Lessee's request, to execute a nondisturbance agreement in favor
of any Tenant or in favor of any sublessee under any sublease
permitted under Section 23.1 above; provided that the Tenant or
any such sublessee has acknowledged all of the foregoing
provisions and executed all documents required by this Section
23.2.
ARTICLE 24
OFFICER'S CERTIFICATES AND FINANCIAL STATEMENTS
-----------------------------------------------
24.1 ESTOPPEL CERTIFICATE. At any time and from time to
time within 20 days following written request by Lessor, Lessee
will furnish to Lessor an Officer's Certificate certifying that
this Lease is unmodified and in full force and effect (or that
this Lease is in full force and effect as modified and setting
forth the modifications, or such other facts and circumstances
relating to the effect of this Lease as may be applicable) and
the dates to which the Rent has been paid. Any such Officer's
Certificate furnished pursuant to this Article may be relied upon
by Lessor, any prospective purchaser of the Leased Property and
any third parties who have an interest in the Leased Property,
including any Lender or professional advisor of Lessor.
24.2 FINANCIAL STATEMENTS AND CERTIFICATES. Lessee will
furnish the following statements to Lessor; provided that Lessor
shall keep confidential items furnished by Lessee which are not
generally available to the public:
(i) within 120 days after the end of each Fiscal
Years (A) a copy of the Consolidated Financial
Statements for such Fiscal Year; (B) an Officer's
Certificate stating (x) that no Event of Default, or
event which, with the giving of notice or the passage
of time, or both, would constitute an Event of Default,
has occurred and is continuing and has not been waived,
or, if there shall have occurred and be continuing such
an Event of Default, specifying the nature thereof and
the steps being taken to remedy the same, and (y) that
to the best of the signer's knowledge and belief,
Lessee is not in default in the performance or
observance of any of the terms of any loans or credit
facilities which by their terms would permit an
outstanding balance equal to or greater than
$5,000,000.00 in the aggregate, which default would
permit the holder thereof to accelerate its stated
maturity; (C) a current rent or lease roll for the
Leased Property setting forth rental information in
reasonable detail regarding all of the Tenants and
Tenant Leases, including any space utilized by Lessee;
(D) a statement of revenues and expenses of the Leased
Property for the prior twelve-month period in detail
reasonably satisfactory to Lessor; and (E) an Officer's
Certificate specifying in detail reasonably
satisfactory to Lessor, the compliance of Lessee and
the Leased Property with Sections 15.1(f) and 15.1(g);
(ii) within 45 days after the end of each of the
first three quarterly periods of each Fiscal Year,
Consolidated Financial Statements as of the end of each
such period, which statements may be internal
statements and need not be audited; and
(iii) with reasonable promptness, such other
information respecting the financial condition, affairs
and properties of Lessee as Lessor may reasonably
request from time to time.
ARTICLE 25
INSPECTION
----------
Lessee shall permit Lessor and its authorized
representatives to inspect the Leased Property during usual
business hours subject to any security, health, safety or
confidentiality requirements of Lessee, the rights of the
Tenants, any Insurance Requirements relating to the Leased
Property, or any other restrictions imposed by law or applicable
regulations.
ARTICLE 26
QUIET ENJOYMENT
----------------
So long as Lessee shall pay all Rent as the same becomes due
and shall fully comply with all of the terms of this Lease and
fully perform its obligations hereunder, Lessee shall peaceably
and quietly have, hold and enjoy the Leased Property for the Term
hereof, free of any claim or other action by Lessor or anyone
claiming by, through or under Lessor, but subject to all liens
and encumbrances of record as of the date hereof or hereafter
consented to by Lessee. No failure by Lessor to comply with the
foregoing covenant shall give Lessee any right to cancel or
terminate this Lease, or to fail to pay any other sum payable
under this Lease, or to fail to perform any other obligation of
Lessee hereunder. Notwithstanding the foregoing, Lessee shall
have the right by separate and independent action to pursue any
claim or seek any damages it may have against Lessor as a result
of a breach by Lessor of the covenant of quiet enjoyment
contained in this Article.
ARTICLE 27
NOTICES
-------
Any notices, demands, approvals and other communications
provided for in this Lease shall be in writing and shall be
delivered by telephonic facsimile, overnight air courier,
personal delivery or registered or certified U.S. Mail with
return receipt requested, postage paid, to the appropriate party
at its address as follows:
If to Lessor:
CAPSTONE CAPITAL CORPORATION
1000 Urban Center Drive, Suite 630
Birmingham, Alabama 35242
Attention: Mr. John W. McRoberts
Telephone: (205) 967-2092
Telecopy: (205) 967-9066
with a copy to:
Thomas A. Ansley, Esq.
Sirote & Permutt, P. C.
2222 Arlington Avenue
Birmingham, Alabama 35205
Telephone: (205) 930-5300
Telecopy: (205) 930-5301
If to Lessee:
GRAND COURT LIFESTYLES, INC.
One Executive Drive
Fort Lee, New Jersey 07024
Attention: Mr. Paul Jawin
Telephone: (201) 947-7322
Telecopy: (201) 947-6663
with a copy to:
Robert W. Strauss, Esq.
Strasburger & Price, L.L.P.
901 Main Street, Suite 4300
Dallas, Texas 75202
Telephone: (214) 651-4629
Telecopy: (214) 651-4330
Addresses for notice may be changed from time to time by
written notice to all other parties. Any communication given by
mail will be effective (i) upon the earlier of (a) three business
days following deposit in a post office or other official
depository under the care and custody of the United States Postal
Service or (b) actual receipt, as indicated by the return
receipt; (ii) if given by telephone facsimile, when sent; and
(iii) if given by personal delivery or by overnight air courier,
when delivered to the appropriate address set forth.
ARTICLE 28
APPRAISAL
---------
In the event that it becomes necessary to determine the
Minimum Purchase Price or the Fair Market Rental Value of the
Leased Property, the Replacement Value for the Leased
Improvements or the Fair Market Value of the Land for any purpose
of this Lease, the party required or permitted to give notice of
such required determination shall include in the notice the name
of a person selected to act as an appraiser on its behalf.
Within ten days after receipt of any such notice, Lessor (or
Lessee, as the case may be) shall by notice to Lessee (or Lessor,
as the case may be) appoint a second person as an appraiser on
its behalf. The appraisers thus appointed (each of whom must be
a member of the American Institute of Real Estate Appraisers or
any successor organization thereto) shall, within 45 days after
the date of the notice appointing the first appraiser, proceed to
appraise the appropriate property interest to determine any of
the foregoing values as of the relevant date (giving effect to
the impact, if any, of inflation from the date of their decision
to the relevant date); provided that if only one appraiser shall
have been so appointed, or if two appraisers shall have been so
appointed but only one such appraiser shall have made such
determination within 50 days after the making of Lessee's or
Lessor's request, then the determination of such appraiser shall
be final and binding upon the parties. If two appraisers shall
have been appointed and shall have made their determinations
within the respective requisite periods set forth above and if
the difference between the amounts so determined shall not exceed
ten percent of the lesser of such amounts, then the relevant
value shall be an amount equal to 50% of the sum of the amounts
so determined. If the difference between the amounts so
determined shall exceed 10% of the lesser of such amounts, then
such two appraisers shall have 20 days to appoint a third
appraiser, but if such appraisers fail to do so, then either
party may request the American Arbitration Association or any
successor organization thereto to appoint an appraiser within 20
days of such request, and both parties shall be bound by any
appointment so made within such 20-day period. If no such
appraiser shall have been appointed within such 20 days or within
90 days of the original request for a determination of any such
value, whichever is earlier, either Lessor or Lessee may apply to
any court having jurisdiction to have appointment made by such
court. Any appraiser appointed, by the American Arbitration
Association or by such court, shall be instructed to determine
the relevant value within 30 days after appointment of such
appraiser. The determination of the appraiser which differs most
in terms of dollar amount from the determinations of the other
two appraisers shall be excluded, and 50% of the sum of the
remaining two determinations shall be final and binding upon
Lessor and Lessee as the relevant value. However, in the event
that following the appraisal performed by said third appraiser,
the dollar amount of two of such appraisals are higher and lower,
respectively, than the dollar amount of the remaining appraisal
in equal degrees, the determinations of both the highest and
lowest appraisal, respectively, shall be rejected and the
determination of the remaining appraisal shall be final and
binding upon Lessor and Lessee as the relevant value. This
provision for determination by appraisal shall be specifically
enforceable to the extent such remedy is available under
applicable law, and any determination hereunder shall be final
and binding upon the parties except as otherwise provided by
applicable law. Lessor and Lessee shall each pay the fees and
expenses of the appraiser appointed by it and each shall pay one-
half of the fees and expenses of the third appraiser and one-half
of all other costs and expenses incurred in connection with each
appraisal.
ARTICLE 29
PURCHASE RIGHTS
---------------
29.1 FIRST REFUSAL TO PURCHASE. During the Term hereof
(provided that no Event of Default has occurred and is
continuing), Lessee shall have a first refusal option to purchase
the Leased Property upon the same terms and conditions as Lessor,
or its successors and assigns, shall propose to sell the Leased
Property, or shall have received an offer from a third party to
purchase the Leased Property, which Lessor intends to accept (or
has accepted subject to Lessee's right of first refusal granted
herein). If, during the Term, Lessor receives such an offer or
reaches such agreement with a third party or proposes to offer
the Leased Property for sale, Lessor shall promptly notify Lessee
of the purchase price and all other material terms and conditions
of such agreement or proposed sale together with a copy of such
offer, and Lessee shall have 30 days after receipt of such notice
from Lessor within which time to exercise Lessee's option to
purchase. If Lessee exercises its option, then such purchase
shall be consummated within the time set forth in the third-party
offer and in accordance with the provisions of Article XVII
hereof to the extent not inconsistent herewith. If Lessee does
not exercise Lessee's option to purchase within said 30-day
period after receipt of said notice from Lessor, Lessor shall be
free for a period of 90 days after the expiration of said 30-day
period to sell the Leased Property to the third party at the
price and terms set forth in such offer. Whether or not such
sale is consummated, all the terms and conditions of this Lease
shall survive and Lessee shall be entitled to exercise its right
of first refusal as provided in this section, as to any
subsequent sale of the Leased Property during the Term of this
Lease.
29.2 NEGATIVE PLEDGE. Lessee shall not, and shall not
permit any of its Affiliates to, create, incur, permit or suffer
to exist any lien upon the Lessee's Personal Property or the
Leased Property now owned or hereafter acquired, except for the
Permitted Liens.
ARTICLE 30
DEFAULT BY LESSOR
-----------------
30.1 DEFAULT BY LESSOR. Lessor shall be in default of its
obligations under this Lease if Lessor shall fail to observe or
perform any term, covenant or condition of this Lease on its part
to be performed and such failure shall continue for a period of
30 days after written notice thereof is received by Lessor,
unless such failure cannot with due diligence be cured within a
period of 30 days, in which case such failure shall not be deemed
to continue if Lessor, within said 30-day period, proceeds
promptly and with due diligence to cure the failure and
diligently completes the curing thereof. The time within which
Lessor shall be obligated to cure any such failure shall also be
subject to extension of time due to the occurrence of any
Unavoidable Delay. In the event Lessor fails to cure any such
default, Lessee, without waiving or releasing any obligations
hereunder, and in addition to all other remedies available to
Lessee hereunder or at law or in equity, may purchase the Leased
Property from Lessor for a purchase price equal to the Minimum
Purchase Price minus an amount equal to any damage suffered by
Lessee by reason of such default. In the event Lessee elects to
purchase the Leased Property, it shall deliver a notice thereof
to Lessor specifying a Payment Date occurring no less than 90
days subsequent to the date of such notice on which it shall
purchase the Leased Property, and the same shall be thereupon
conveyed in accordance with the provisions of Article XVII. Any
sums owed Lessee by Lessor hereunder shall bear interest at the
Overdue Rate from the date due and payable until the date paid.
30.2 LESSEE'S RIGHT TO CURE. Subject to the provisions of
Section 30.1, if Lessor shall breach any covenant to be performed
by it under this Lease, Lessee, after giving notice to and demand
upon Lessor in accordance with Section 30.1, without waiving or
releasing any obligation of Lessor hereunder, and in addition to
all other remedies available hereunder and at law or in equity to
Lessee, Lessee may (but shall be under no obligation at any time
thereafter to) make such payment or perform such act for the
account and at the expense of Lessor. All sums so paid by Lessee
and all costs and expenses (including reasonable attorneys' fees)
so incurred, together with interest thereon at the Overdue Rate
from the date on which such sums or expenses are paid or incurred
by Lessee, shall be paid by Lessor to Lessee on demand or set off
against the Rent. The rights of Lessee hereunder to cure and to
secure payment from Lessor in accordance with this Section 30.2
shall survive the termination of this Lease.
ARTICLE 31
RESERVED
--------
ARTICLE 32
FINANCING OF THE LEASED PROPERTY
---------------------------------
Lessor agrees that it will not grant or create any mortgage,
deed of trust, lien, encumbrance or other title retention
agreement upon the Leased Property to secure any indebtedness of
Lessor (an "Encumbrance"), unless each holder of such an
Encumbrance agrees (a) as a condition of the effectiveness of
such notice to Lessor, to give Lessee the same notice, if any,
given to Lessor of any default or acceleration of any obligation
underlying any such Encumbrance or any sale in foreclosure of
such Encumbrance, (b) to permit Lessee to appear with its
representatives and to bid at any public foreclosure sale with
respect to any such Encumbrance, (c) agrees to release the Leased
Property from the Encumbrance upon the exercise by Lessee of a
right to purchase contained in this Lease and the payment by
Lessee of the applicable purchase price, and (d) enters into an
agreement with Lessee containing the provisions described in
Article XXXIII of this Lease. Lessee agrees to execute and
deliver to Lessor or the holder of an Encumbrance any written
agreement required by this Article within ten days of written
request thereof by Lessor or the holder of an Encumbrance.
ARTICLE 33
SUBORDINATION, ATTORNMENT AND NON-DISTURBANCE
---------------------------------------------
At the request from time to time by one or more holders of
an Encumbrance that may hereafter be placed upon the Leased
Property or any part thereof, and any and all renewals,
replacements, modifications, consolidations, spreaders and
extensions thereof, Lessee will subordinate this Lease and all of
Lessee's rights and estate hereunder to each such Encumbrance and
will attorn to and recognize such holder (or the purchaser at any
foreclosure sale or any sale under a power of sale contained in
any such Encumbrance or a holder by a deed in lieu of
foreclosure, as the case may be) as Lessor under this Lease for
the balance of the Term then remaining, subject to all of the
terms and provisions of this Lease; provided that each such
holder simultaneously with or prior to recording any such
Encumbrance executes and delivers a written agreement in
recordable form (a) consenting to this Lease and agreeing that,
notwithstanding any such other lease, mortgage, deed of trust,
right, title or interest, or any default, expiration,
termination, foreclosure, sale, entry or other act or omission
under, pursuant to or affecting any of the foregoing, Lessee
shall not be disturbed in peaceful enjoyment of the Leased
Property nor shall this Lease be terminated or canceled at any
time, except in the event Lessor shall have the right to
terminate this Lease under the terms and provisions expressly set
forth herein; (b) agreeing that it will be bound by all the terms
of this Lease, perform and observe all of Lessor's obligations
set forth herein; (c) agreeing that all proceeds of the casualty
insurance described in Article XIII of this Lease and all Awards
described in Article XIV will be made available to Lessor and
Lessee for restoration of the Leased Property as and to the
extent required by this Lease, subject only to reasonable
regulation regarding the manner of disbursement and application
thereof; and (d) agreeing that Lessee shall not be required to
pay amounts to comply with any insurance requirements of such
Facility Mortgagee in excess of the amounts necessary to satisfy
the insurance requirements set forth in this Lease. Lessee
agrees to execute and deliver to Lessor or the holder of an
Encumbrance any written agreement required by this Article within
ten days of written request thereof by Lessor or the holder of an
Encumbrance. Lessee agrees to execute at the request from time
to time of Lessor or an institutional investor a certificate
setting forth any defaults of Lessor hereunder and the dates
through which Rent has been paid and such other matters as may be
reasonably requested.
ARTICLE 34
EXTENDED TERMS
--------------
If no Event of Default shall have occurred and be
continuing, Lessee is hereby granted the right to extend the Term
of this Lease for three consecutive five-year periods ("Extended
Term") for a maximum possible Term of 30 years, by giving written
notice to Lessor of each such extension at least 180 days, but
not more than 270 days, prior to the expiration of the then-
current Term; subject, however, to the provisions of Section 13.7
hereof; provided that this Lease may not be extended unless all
of the Affiliated Leases are extended by Lessee and its
Affiliates. Lessee may not exercise its option for more than one
Extended Term at a time. During each Extended Term, all of the
terms and conditions of this Lease shall continue in full force
and effect, except that the Minimum Rent for and during each of
the Extended Terms shall be the greater of (i) the Fair Market
Rental Value on the first day of such Extended Term or (ii) the
Minimum Rent in effect immediately prior to the first day of such
Extended Term. In any event, the Minimum Rent shall continue to
be increased throughout the Extended Terms in accordance with the
provisions of Section 2.1(b) hereof.
ARTICLE 35
MISCELLANEOUS
-------------
35.1 NO WAIVER. No failure by Lessor or Lessee to insist
upon the strict performance of any term hereof or to exercise any
right, power or remedy consequent upon a breach thereof, and no
acceptance of full or partial payment of the Rent during the
continuance of any such breach, shall constitute a waiver of any
such breach or any such term. To the extent permitted by law, no
waiver of any breach shall affect or alter this Lease, which
shall continue in full force and effect with respect to any other
then existing or subsequent breach.
35.2 REMEDIES CUMULATIVE. To the extent permitted by law,
each legal, equitable or contractual right, power and remedy of
Lessor or Lessee now or hereafter provided either in this Lease
or by statute or otherwise shall be cumulative and concurrent and
shall be in addition to every other right, power and remedy and
the exercise or beginning of the exercise by Lessor or Lessee of
any one or more of such rights, powers and remedies shall not
preclude the simultaneous or subsequent exercise by Lessor or
Lessee of any or all of such other rights, powers and remedies.
35.3 SURRENDER. No surrender to Lessor of this Lease or of
the Leased Property or any part thereof, or of any interest
therein, shall be valid or effective unless agreed to and
accepted in writing by Lessor and no act by Lessor or any
representative or agent of Lessor, other than such a written
acceptance by Lessor, shall constitute an acceptance of any such
surrender.
35.4 NO MERGER OF TITLE. There shall be no merger of this
Lease or of the leasehold estate created hereby by reason of the
fact that the same person, firm, corporation or other entity may
acquire, own or hold, directly or indirectly, (a) this Lease or
the leasehold estate created hereby or any interest in this Lease
or such leasehold estate and (b) the fee estate in the Leased
Property.
35.5 TRANSFERS BY LESSOR. If Lessor or any successor owner
of the Leased Property shall convey the Leased Property in
accordance with the terms hereof, other than as security for a
debt, the grantee or transferee of the Leased Property shall
expressly assume all obligations of Lessor hereunder arising or
accruing from and after the date of such conveyance or transfer,
and shall be reasonably capable of performing the obligations of
Lessor hereunder and Lessor or such successor owner, as the case
may be, shall thereupon be released from all future liabilities
and obligations of Lessor under this Lease arising or accruing
from and after the date of such conveyance or other transfer and
all such future liabilities and obligations shall thereupon be
binding upon the new owner.
35.6 GENERAL. Anything contained in this Lease to the
contrary notwithstanding, all claims against, and liabilities of,
Lessee and Lessor against the other arising out of or relating to
this Lease and arising prior to any date of termination of this
Lease shall survive such termination. If any term or provision
of this Lease or any application thereof shall be invalid or
unenforceable, the remainder of this Lease and any other
application of such term or provision shall not be affected
thereby. If any late charges provided for in any provision of
this Lease are based upon a rate in excess of the maximum rate
permitted by applicable law, the parties agree that such charges
shall be fixed at the maximum permissible rate. Neither this
Lease nor any provision hereof may be changed, waived, discharged
or terminated except by an instrument in writing and in
recordable form signed by Lessor and Lessee. All the terms and
provisions of this Lease shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and
assigns. The headings in this Lease are for convenience of
reference only and shall not limit or otherwise affect the
meaning hereof. This Lease shall be governed by and construed in
accordance with the laws of state where the Leased Property is
located, but not including its conflict of laws rules. This
Lease may be executed in one or more counterparts, each of which
shall be an original but, when taken together, shall constitute
but one document.
35.7 MEMORANDUM OF LEASE. Lessor and Lessee shall upon
execution hereof enter into a short form memorandum of this Lease
in form suitable for recording under the laws of the state in
which the Leased Property is located in which reference to this
Lease, and all options contained herein, shall be made.
35.8 TRANSFER OF LICENSES. Upon the expiration or earlier
termination of the Term, Lessee shall take all reasonable action
necessary to effect or useful in effecting, if permissible, the
transfer to Lessor or Lessor's nominee of all licenses, operating
permits and other governmental authorizations and all service
contracts which may be necessary or useful in the operation of
the Facility and which relate exclusively to the Facility which
have not previously been transferred or assigned to Lessor.
ARTICLE 36
GLOSSARY OF TERMS
-----------------
36.1 For purposes of this Lease, except as otherwise
expressly provided or unless the context otherwise requires, (a)
the terms defined in this Article XXXVI have the meanings
assigned to them in this Article XXXVI and include the plural as
well as the singular, (b) all accounting terms not otherwise
defined herein have the meanings assigned to them in accordance
with generally accepted accounting principles as at the time
applicable, (c) all references in this Lease to designated
"Articles", "Sections" and other subdivisions are to the
designated Articles, Sections and other subdivisions of this
Lease, and (d) the words "herein", "hereof" and "hereunder" and
other words of similar import refer to this Lease as a whole and
not to any particular Article, Section or other subdivision, (e)
the word "including" shall mean "including without limitation,"
and (f) all consents required of Lessor hereunder shall be in
Lessor's sole and absolute discretion, unless otherwise
specifically set forth herein. For purposes of this Lease, the
following terms shall have the meanings indicated:
"Additional Charges" has the meaning set forth in Section
2.3 hereof together with any other items specifically included as
"Additional Charges" in this Agreement.
"Adjustment Date" has the meaning set forth in Section
2.1(b) hereof.
"Affiliate", when used with respect to Lessee, means any
Person directly or indirectly controlling, controlled by or under
direct or indirect common control with Lessee, as the case may
be. For the purposes of this definition, "control", as used with
respect to any Person, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the
management and policies of such Person, through the ownership of
voting securities, partnership interests or other equity
interests.
"Affiliated Leases" has the meaning set forth in Section
15.1(a).
"Award" means all compensation, sums or anything of value
awarded, paid or received on a total or partial Condemnation.
"Base Amount" means the sum of (A) the Project Amount, plus
----
(B) the sum of all Capital Addition Costs relating to the Leased
Property paid for or financed by Lessor which as of the date of
purchase of the Leased Property by Lessee have not been repaid by
Lessee.
"Business Day" means each Monday, Tuesday, Wednesday,
Thursday and Friday which is not a day on which national banks in
the City of Birmingham, Alabama are closed.
"Capital Additions" means one or more new buildings or one
or more additional structures annexed to any portion of any of
the Leased Improvements, which are constructed on any parcel or
portion of the Land during the Term, including the construction
of a new wing or new story, or the rebuilding of the existing
Leased Improvements or any portion thereof not normal, ordinary
or recurring to maintain the Leased Property, excluding, however,
any construction governed by the provisions of Article XIII.
"Capital Addition Cost" means the cost of any Capital
Additions made by Lessee whether paid for by Lessee or Lessor.
Such cost shall include and be limited to (a) the cost of
construction of the Capital Additions, including site preparation
and improvement, materials, labor, supervision and certain
related design, engineering and architectural services and the
cost of any fixtures, construction financing and miscellaneous
items approved in writing by Lessor, (b) if agreed to by Lessor
in writing in advance, the cost of any land contiguous to the
Leased Property purchased for the purpose of placing thereon the
Capital Additions or any portion thereof or for providing means
of access thereto, or parking facilities therefor, including the
cost of surveying the same, (c) the cost of insurance, real
estate taxes, water and sewage charges and other carrying charges
for such Capital Additions during construction, (d) the cost of
title insurance, (e) reasonable fees and expenses of legal
counsel and accountants, (f) filing, registration and recording
taxes and fees, (g) documentary stamp taxes, if any, (h)
environmental assessments and boundary surveys and (i) all
reasonable costs and expenses of Lessor and any Lending
Institution which has committed to finance the Capital Additions,
including, (A) the reasonable fees and expenses of their
respective legal counsel, (B) all printing expenses, (C) the
amount of any filing, registration and recording taxes and fees,
(D) documentary stamp taxes, if any, (E) title insurance charges,
appraisal fees, if any, (F) rating agency fees, if any, and (G)
commitment fees, if any, charged by any Lending Institution
advancing or offering to advance any portion of the financing for
such Capital Additions.
"Capital Replacement Account" has the meaning set forth in
Section 2.1(c).
"Charge" has the meaning set forth in Article XI hereof.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commencement Date" has the meaning set forth in Article I.
"Condemnation" means the transfer of all or any part of the
Leased Property as a result of (i) the exercise of any
governmental power, whether by legal proceedings or otherwise, by
a Condemnor or (ii) a voluntary sale or transfer by Lessor to any
Condemnor, either under threat of Condemnation or while legal
proceedings for Condemnation are pending.
"Condemnor" means any public or quasi-public authority, or
private corporation or individual, having the power of
Condemnation.
"Consolidated Financial Statements" means for any fiscal
year or other accounting period for Developer and its respective
consolidated Affiliates, including Lessee, audited statements of
earnings and retained earnings and of changes in financial
position for such period and for the period from the beginning of
the respective fiscal year of Developer to the end of such period
and the related balance sheet as at the end of such period,
together with the notes thereto, all in reasonable detail and
setting forth in comparative form the corresponding figures for
the corresponding period in the preceding fiscal year of
Developer, and prepared in accordance with generally accepted
accounting principles consistently applied, except as noted.
"Consolidated Net Worth" means at any time, the sum of the
following for Developer and its consolidated Affiliates,
including Lessee, on a consolidated basis determined in
accordance with generally accepted accounting principles:
(a) the amount of capital or stated capital (after
deducting the cost of any treasury shares or like
interests), plus
(b) the amount of capital surplus and retained
earnings (or, in the case of a capital surplus or retained
earnings deficit, minus the amount of such deficit), minus
(c) the sum of the following (without duplication of
deductions in respect of items already deducted in arriving
at capital surplus and retained earnings): (i) unamortized
debt discount and expense; (ii) any write-up in book value
of assets resulting from a revaluation thereof subsequent to
the most recent Consolidated Financial Statement prior to
the date thereof, except any net write-up in value of
foreign currency; (iii) any write-up resulting from a
reversal of a reserve for bad debts or depreciation; and
(iv) any write-up resulting from a change in methods of
accounting for inventory.
"Coverage Ratio" means EBITDAR for the Leased Property for
the previous three months, times four divided by the Minimum Rent
due for the next-succeeding twelve-month period.
"Credit Enhancements" means all cash collateral, security
deposits, security interests, letters of credit, pledges, prepaid
rent or other sums, deposits or interests held by Lessee, if any,
to secure obligations with respect to the Leased Property, the
Tenant Leases or the Tenants.
"Date of Taking" means the date the Condemnor has the right
to possession of the property being condemned.
"Development Agreement" has the meaning set forth in Article
I.
"EBITDAR" means, for any period, the sum of (i) the income
(or deficit) from the Leased Property before provision of income
taxes for such period, plus (ii) the interest charges paid or
----
accrued during such period (including imputed interest on capital
lease obligations, but excluding amortization of debt discount
and expense), plus (iii) all amounts in respect of depreciation
----
and amortization for such period, plus (iv) the Minimum Rent for
----
such period.
"Encumbrance" has the meaning set forth in Article XXXII.
"Event of Default" has the meaning set forth in Section
15.1.
"Extended Term" has the meaning set forth in Section XXXIV.
"Facility" means the __________ square foot assisted and
independent living facility and related parking areas to be
operated on the Leased Property.
"Facility Mortgage" has the meaning set forth in Section
12.1.
"Facility Mortgagee" has the meaning set forth in Section
12.1.
"Fair Market Rental Value" means the fair market rental
value of the Leased Property (a) assuming the same is
unencumbered by this Lease, (b) determined in accordance with the
appraisal procedures set forth in Article XXVIII or in such other
manner as shall be mutually acceptable to Lessor and Lessee, and
(c) not taking into account any reduction in value resulting from
an indebtedness to which the Leased Property may be subject.
"Fair Market Value" means the fair market value of the Land
(a) assuming the same is unencumbered by this Lease, (b)
determined in accordance with the appraisal procedures set forth
in Article XXVIII or in such other manner as shall be mutually
acceptable to Lessor and Lessee, and (c) not taking into account
any reduction in value resulting from any Encumbrance which
Lessee or Lessor is otherwise required to remove pursuant to any
provision of this Lease or agrees to remove at or prior to the
closing of the transaction for which such Fair Market Value
determination is being made.
"Fiscal Year" means the twelve-month period from February 1
to January 31.
"Fixtures" has the meaning set forth in Article I.
"Full Replacement Cost" has the meaning set forth in Section
12.2.
"Hazardous Materials" means any substance, including
asbestos or any substance containing asbestos, the group of
organic compounds known as polychlorinated biphenyls, flammable
explosives, radioactive materials, medical waste, chemicals,
pollutants, effluents, contaminants, emissions or any other
related materials and items included in the definition of
hazardous or toxic wastes, materials or substances under any
Hazardous Materials Law.
"Hazardous Materials Law" means any law, regulation or
ordinance relating to environmental conditions, medical waste and
industrial hygiene, including the Resource Conservation and
Recovery Act of 1976 ("RCRA"), the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 ("CERCLA"), as
amended by the Superfund Amendments and Reauthorization Act of
1986 ("SARA"), the Hazardous Materials Transportation Act, the
Federal Water Pollution Control Act, the Clean Air Act, the Clean
Water Act, the Toxic Substances Control Act, the Safe Drinking
Water Act, the Atomic Energy Act and all similar federal, state
and local environmental statutes and ordinances, whether
heretofore or hereafter enacted or effective and all regulations,
orders, or decrees heretofore or hereafter promulgated
thereunder.
"Impositions" means, collectively, all taxes relating to the
Leased Property, including all ad valorem, sales and use, gross
receipts, action, privilege, rent (with respect to the Tenant
Leases) or similar taxes, assessments (including all assessments
for public improvements or benefits, whether or not commenced or
completed prior to the date hereof and whether or not to be
completed within the Term), water, sewer or other rents and
charges, excises, tax levies, fees (including license, permit,
inspection, authorization and similar fees), and all other
governmental charges, in each case whether general or special,
ordinary or extraordinary, or foreseen or unforeseen, of every
character in respect of the Leased Property and/or the Rent
(including all interest and penalties thereon due to any failure
in payment by Lessee), which at any time prior to, during or in
respect of the Term hereof may be assessed or imposed on or in
respect of or be a lien upon (a) Lessor or Lessor's interest in
the Leased Property, (b) the Rent, the Leased Property or any
part thereof or any rent therefrom or any estate, right, title or
interest therein, or (c) any occupancy, operation, use or
possession of, sales from, or activity conducted on, or in
connection with, the Leased Property or the Tenant Leases or use
of the Leased Property or any part thereof; provided that nothing
contained in this Lease shall be construed to require Lessee to
pay (1) any tax based on net income (whether denominated as a
franchise or capital stock or other tax) imposed on Lessor, (2)
any transfer or net revenue tax of Lessor, (3) any tax imposed
with respect to the sale, exchange or other disposition by Lessor
of any portion of the Leased Property or the proceeds thereof, or
(4) except as expressly provided elsewhere in this Lease, any
principal or interest on any Encumbrance on the Leased Property,
except to the extent that any tax, assessment, tax levy or charge
which Lessee is obligated to pay pursuant to this definition and
which is in effect at any time during the Term hereof is totally
or partially repealed, and a tax, assessment, tax levy or charge
set forth in clause (1), (2) or (3) is levied, assessed or
imposed expressly in lieu thereof.
"Initial Term" has the meaning set forth in Article I.
"Insurance Requirements" means all terms of any insurance
policy required by this Lease and all requirements of the issuer
of any such policy.
"Land" has the meaning set forth in Article I.
"Lease" means this Lease.
"Lease Amendment" has the meaning set forth in Section
9.3(b)(iv).
"Lease Assignment" means that certain Assignment of Rents
and Leases, substantially in the form attached hereto as Exhibit
-------
F, to be dated on or about the date hereof executed by Lessee to
-
Lessor, pursuant to the terms of which Lessee assigns to Lessor
each of the Tenant Leases and Credit Enhancements, if any, as
security for the obligations of Lessee under this Lease, and any
other obligations of Lessee, or any Affiliate of Lessee to
Lessor.
"Leased Improvements" and "Leased Property" have the
meanings set forth in Article I.
"Legal Requirements" means all federal, state, county,
municipal and other governmental statutes, laws, rules, orders,
regulations, ordinances, judgments, decrees and injunctions
affecting the Leased Property or the construction, use or
alteration thereof, whether now or hereafter enacted and in
force, including any which may (a) require repairs, modifications
or alterations of or to the Leased Property, or (b) in any way
adversely affect the use and enjoyment thereof, and all permits,
licenses, authorizations and regulations relating thereto, and
all covenants, agreements, actions and encumbrances contained in
any instruments, either of record or known to Lessee (other than
encumbrances created by Lessor without the consent of Lessee), at
any time in force affecting the Leased Property.
"Lending Institution" means any insurance company, federally
insured commercial or savings bank, national banking association,
savings and loan association, employees' welfare, pension or
retirement fund or system, corporate profit-sharing or pension
plan, college or university, or real estate investment company
including any corporation qualified to be treated for federal tax
purposes as a real estate investment trust having a net worth of
at least $50,000,000.
"Lessee" means GRAND COURT LIFESTYLES, INC., a Delaware
corporation, its successors and assigns.
"Lessor" means CAPSTONE CAPITAL CORPORATION, a Maryland
corporation, and its successors and assigns.
"Minimum Purchase Price" means the greater of (i) the
Replacement Value of the Leased Improvements plus the Fair Market
Value of the Land at the time of any purchase hereunder by Lessee
or (ii) the Option Amount.
"Minimum Rent" has the meaning set forth in Section 2.1(a).
"Officer's Certificate" means a certificate of Lessee signed
by the Chairman of the Board of Directors, the President, any
Vice President or another officer authorized to so sign by the
Board of Directors or By-Laws of Lessee, or any other person
whose power and authority to act has been authorized by
delegation in writing by any of the persons holding the foregoing
offices.
"Option Amount" means the sum of (i) Base Amount plus
(ii) the Base Amount times the Option Factor.
"Option Factor" means .20 on the fourth anniversary of the
Commencement Date, which Option Factor shall decline by .02 on
each anniversary of the Commencement Date thereafter; provided
that the Option Factor shall never fall below .10 throughout the
Term.
"Ordinary Course of Business" means the ordinary course of
business for Lessee consistent with past custom and practice
(including quantity and frequency).
"Overdue Rate" means as of any date, a rate per annum equal
to the Prime Rate as of such date, plus two percent, but in no
event greater than the maximum rate then permitted under
applicable law.
"Payment Date" means any due date for the payment of the
installments of Minimum Rent under this Lease.
"Permitted Exceptions" has the meaning set forth in Article
I.
"Permitted Liens" means (i) liens described on Exhibit D
---------
attached hereto, (ii) pledges or deposits made to secure payments
of worker's compensation insurance (or to participate in any fund
in connection with worker's compensation insurance), unemployment
insurance, pensions or social security programs, (iii) liens
imposed by mandatory provisions of law such as for materialmen,
mechanics, warehousemen and other like liens arising in the
Ordinary Course of Business, securing indebtedness whose payment
is not yet due and payable, (iv) liens for taxes, assessments and
governmental charges or levies if the same are not yet due and
payable or if the same are being contested in good faith and as
to which adequate cash reserves have been provided, (v) liens
arising from good faith deposits in connection with tenders,
leases, real estate bids or contracts (other than contracts
involving the borrowing of money), pledges or deposits to secure
public or statutory obligations and deposits to secure (or in
lieu of) surety, stay, appeal or customs bonds and deposits to
secure the payment of taxes, assessments, duties or other similar
charges, (vi) liens to secure purchase money indebtedness, so
long as the indebtedness incurred to purchase the new asset is
secured only by such asset, or (vii) encumbrances consisting of
zoning restrictions, easements or other restrictions on the use
of real property; provided that such items do not impair the use
of such property for the purposes intended, none of which is
violated by existing or proposed structures or land use.
"Person" means a natural person, corporation, partnership,
trust, association, limited liability company or other entity.
"Personal Property" means the personal property specifically
set forth on Exhibit E attached hereto, together with all
---------
additions, substitutions and replacements thereof, necessary or
appropriate for the use and operation of the Leased Property for
its Primary Intended Use.
"Primary Intended Use" has the meaning set forth in Section
6.2(a).
"Prime Rate" means the annual rate reported by The Wall
Street Journal, Eastern Edition (or, if The Wall Street Journal
shall no longer be published or shall cease to report such rates,
then a publication or journal generally acceptable in the
financial industry as authoritative evidence of prevailing
commercial lending rates) from time to time as being the
prevailing prime rate (or, if more than one such rate shall be
published in any given edition, the arithmetic mean of such
rates). The prime rate is an index rate used by The Wall Street
Journal to report prevailing lending rates and may not
necessarily be its most favorable lending rate available. Any
change in the Prime Rate hereunder shall take effect on the
effective date of such change in the prime rate as reported by
The Wall Street Journal, without notice to Lessee or any other
action by Lessor. Interest shall be computed on the basis that
each year contains 360 days, by multiplying the principal amount
by the per annum rate set forth above, dividing the product so
obtained by 360, and multiplying the quotient thereof by the
actual number of days elapsed.
"Project Amount" means, to the extent not reimbursed by
Lessee, the Purchase Price plus the total additional amount
disbursed by Lessor or one of its Affiliates to Lessee or set
aside pursuant to Article 5 of the Development Agreement for the
construction and development of the Leased Improvements pursuant
to the Development Agreement, as the same may be adjusted
pursuant to Section 5.10 of the Development Agreement, and
Section 5.4 of this Agreement.
"Purchase Price" means the sum of the purchase price Lessor
paid for the Land plus all expenses and fees incurred by Lessor
in connection therewith.
"Rent" means, collectively, the Minimum Rent and the
Additional Charges.
"Replacement Value" means the fair market value of the
Leased Improvements determined solely on the basis of replacement
cost of the Leased Improvements in accordance with the appraisal
procedures set forth in Article XXVIII or in such other manner as
shall be mutually acceptable to Lessor and Lessee.
"Request" has the meaning set forth in Section 9.3(a).
"Taking" means a taking or voluntary conveyance during the
Term hereof of all or part of the Leased Property, or any
interest therein or right accruing thereto or use thereof, as the
result of, or in settlement of any Condemnation or other eminent
domain proceeding affecting the Leased Property whether or not
the same shall have actually been commenced.
"Tenant" means the lessees or tenants under the Tenant
Leases, if any.
"Tenant Leases" means all leases, subleases, assignments and
other rental agreements (written or verbal, now or hereafter in
effect), that grant a possessory interest in and to any of the
Units and all Credit Enhancements, if any, held in connection
therewith.
"Term" means the Initial Term and any Extended Term as to
which Lessee has exercised its options to extend contained in
Article XXXIV hereof unless earlier terminated pursuant to the
provisions hereof.
"Treasury Yield" means as of any date the weekly average
yield on United States Treasury Securities - Constant Maturity
Series issued by the United States Government for a term of ten
years, as most recently published by the Federal Reserve Board in
Federal Reserve Statistical Release H.15(519). If, with respect
to the Treasury Yield, Lessor shall determine that the sale of
Treasury Securities by the United States Government has been
suspended, or Treasury Securities are not being offered for sale,
or the weekly average yield is no longer printed by the Federal
Reserve Board in Federal Reserve Statistical Release H.15(519) or
for any other reason Lessor is not able to obtain a quotation
from the Federal Reserve for the sale of such Treasury
Securities, then Lessor shall forthwith give notice to Lessee and
advise Lessee of a new index for determining the interest rate to
be used in connection with this Agreement, which rate, in the
good faith judgment of Lessor, shall be substantially equivalent
to the Treasury Yield.
"Unavoidable Delays" means delays due to strikes, lockouts,
inability to procure materials after the exercise of reasonable
efforts, power failure, acts of God, governmental restrictions,
enemy action, civil commotion, fire, unavoidable casualty or
other causes beyond the control of the party responsible for
performing an obligation hereunder, provided that lack of funds
shall not be deemed a cause beyond the control of either party
hereto unless such lack of funds is caused by the failure of the
other party hereto to perform any obligations of such other party
under this Lease.
"Unsuitable for Its Primary Intended Use" as used anywhere
in this Lease, shall mean that, by reason of damage or
destruction, or a partial Taking, in the good faith judgment of
Lessee, reasonably exercised, the Facility cannot be profitably
operated for its Primary Intended Use, taking into account, among
other relevant factors, the number of usable Units and the number
of Tenants affected by such damage or destruction or partial
Taking.
"Units" means the individual assisted and independent living
units within the Leased Property.
IN WITNESS WHEREOF, the parties have caused this Lease to be
executed and their respective corporate seals to be hereunto
affixed and attested by their respective officers thereunto duly
authorized as of the date first written above.
LESSOR
CAPSTONE CAPITAL CORPORATION
a Maryland corporation
By____________________________
Its___________________________
LESSEE
GRAND COURT LIFESTYLES, INC.
a Delaware corporation
By____________________________
Its___________________________
<PAGE>
EXHIBIT A
PROPERTY DESCRIPTION
<PAGE>
EXHIBIT B
PERMITTED EXCEPTIONS
<PAGE>
EXHIBIT C
SCHEDULE OF CONTRIBUTIONS BY LESSEE
TO CAPITAL REPLACEMENT ACCOUNT
Lessee shall fund the Capital Replacement Account on annual
basis at the rate of $75.00 per Unit per year, such payment to
increase by $25.00 per Unit per year up to a maximum of $250.00
per Unit per year, commencing with the first payment on the first
anniversary of the Commencement Date and continuing on each
anniversary of such date thereafter.
<PAGE>
EXHIBIT D
PERMITTED LIENS
NONE
<PAGE>
EXHIBIT E
PERSONAL PROPERTY
<PAGE>
EXHIBIT F
ASSIGNMENT OF RENTS AND LEASES
STATE OF ALABAMA )
KNOW ALL MEN BY THESE PRESENTS:
JEFFERSON COUNTY )
THIS ASSIGNMENT OF RENTS AND LEASES (this "Assignment") is
entered into as of _________ _____, 1996, by and between GRAND
COURT LIFESTYLES, INC., a delaware corporation ("Assignor" or
"Lessee") whose address for notice hereunder is One Executive
Drive, Fort Lee, New Jersey 07024 and CAPSTONE CAPITAL
CORPORATION, a Maryland corporation ("Assignee" or "Lessor"),
whose address for notice hereunder is 1000 Urban Center Drive,
Suite 630, Birmingham, Alabama 35242.
WITNESSETH
ARTICLE 1.
DEFINITIONS
-----------
As used herein, the following capitalized terms used herein
shall have the following meanings:
"Credit Enhancements" means all security deposits, security
interests, letters of credit, pledges, prepaid rent or other
sums, deposits or interests, if any, held by Lessee with respect
to the Property, the Tenant Leases or the tenants under the
Tenant Leases.
"Engineering Documents" means all site plans, surveys, soil
and substrata studies, architectural drawings, plans and
specifications, engineering plans and studies, floor plans,
landscape plans, and other plans and studies that relate to the
Land, the Improvements or the Fixtures and are in Lessee's
possession or control.
"Fixtures" means all permanently affixed equipment,
machinery, fixtures, and other items of real and/or personal
property, including all components thereof, now and hereafter
located in, on or used in connection with, and permanently
affixed to or incorporated into the Improvements, including,
without limitation, all furnaces, boilers, heaters, electrical
equipment, heating, plumbing, lighting, ventilating,
refrigerating, incineration, air and water pollution control,
waste disposal, air-cooling and air-conditioning systems and
apparatus, sprinkler systems and fire and theft protection
equipment, and built-in vacuum, cable transmission, oxygen and
similar systems, all of which, to the greatest extent permitted
by law, are hereby deemed by the parties hereto to constitute
real estate, together with all replacements, modifications,
alterations and additions thereto, but specifically excluding any
of Tenant's trade fixtures or other fixtures that a Tenant is
permitted to remove pursuant to the applicable Tenant Lease.
"Improvements" means all buildings, improvements, structures
and Fixtures now or on the Closing Date located on the Land,
including, without limitation, landscaping, parking lots and
structures, roads, drainage and all above ground and underground
utility structures, equipment systems and other so-called
"infrastructure" improvements.
"Land" means the real property more particularly described
on Exhibit A attached hereto and made a part hereof, together
---------
with all covenants, licenses, privileges and benefits thereto
belonging, and any easements, rights-of-way, rights of ingress or
egress or other interests of Lessee in, on, or to any land,
highway, street, road or avenue, open or proposed, in, on,
across, in front of, abutting or adjoining such real property
including, without limitation, any strips and gores adjacent to
or lying between such real property and any adjacent real
property.
"Lease" means that certain lease agreement of even date
herewith between Lessor and Lessee.
"License" has the meaning set forth in Section 3.1 hereof.
"Obligations" means any and all of the indebtedness,
liabilities, and other obligations made or undertaken by Lessee
to Lessor or others as set forth in the Security Documents
(hereinafter defined), the Lease and any lease, sublease or other
form of conveyance or any other agreement pursuant to which
Lessee is granted a possessory interest in the Property.
"Obligation Documents" means any and all agreements,
assignments and instruments (including any renewals, extensions,
modifications or amendments thereof) evidencing, securing or
pertaining to the Lease.
"Property" means, collectively, the Improvements, the Credit
Enhancements, the Engineering Documents and the Warranties.
"Rents" means the immediate, absolute and continuing right
to collect and receive all of the rents, income, receipts,
revenues, proceeds, security and other types of deposits, issues
and profits now due or which may become due or to which Lessee
may now or shall hereafter (whether upon any applicable
redemption period or otherwise) become entitled or may demand or
claim, arising or issuing from or out of the Tenant Leases, or
from or out of the Property or any part thereof (subject only to
the limited license granted herein by Lessor to Lessee to so
collect and receive the Rents), including, without limiting the
generality of the foregoing, minimum rents, additional rents,
parking maintenance charges or fees, tax and insurance
contributions, proceeds of sale of electricity, gas, chilled and
heated water and other utilities and services, deficiency rents
and liquidated damages following default, premiums payable by any
Tenant upon the exercise of a cancellation privilege provided for
in a Tenant Lease and all proceeds payable under any policy of
insurance covering loss of rents resulting from untenantability
caused by destruction or damage to the Property.
"Security Documents" means this Assignment, and any and all
other documents now or hereafter executed by Lessee, or any other
person or party, to evidence or secure the payment or performance
and discharge of the Obligations, including, without limitation,
the Lease.
"Tenant Leases" means all leases, subleases and other rental
agreements and guaranties thereof (written or verbal, now or
hereafter in effect) that grant a possessory interest in and to
occupy and enjoy all or any portion of the Property (save and
except any and all leases, subleases or other agreements pursuant
to which Lessor or Lessee is granted a possessory interest in the
Land), including, without limitation, those certain tenant lease
agreements and guaranties (herein so called) described on Exhibit
-------
B attached hereto and incorporated herein by reference for all
-
purposes, together with all the rights, power and authority of
Lessee to execute, deliver, perform, enforce, alter, modify or
supplement the terms of such leases and agreements or to
surrender, cancel or terminate such leases and agreements without
the prior written consent of Lessor, and together with any and
all guarantees of any of the tenant's obligations under any of
such leases. Any of the Tenant Leases are hereinafter referred
to individually as a "Tenant Lease" and collectively as the
"Tenant Leases".
"Warranties" means all transferrable warranties,
representations and guaranties with respect to the Property,
whether express or implied, which Lessee now holds or under which
Lessee is the beneficiary, including, without limitation, all of
the representations, warranties and guaranties given and/or
assigned to Lessee under the Tenant Leases.
ARTICLE 2.
ASSIGNMENT
----------
Lessee, in consideration of the sum of $10.00, and other
good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, does hereby grant, sell, convey,
assign, transfer, set over and deliver the Tenant Leases and the
Rents unto this Lessor, to have and to hold the Tenant Leases and
the Rents unto Lessor, and Lessee does hereby bind itself, its
successors and assigns to warrant and defend the title to the
Tenant Leases and the Rents unto Lessor against every person
whomsoever lawfully claiming or to claim the name or any part
thereof, by, through or under Lessee but not otherwise.
ARTICLE 3.
LIMITED LICENSE, CONTINUATION
AND TERMINATION OF ASSIGNMENT
-----------------------------
3.1 Limited License.
---------------
Lessee shall have the right under a limited license (the
"License") which may be revoked by Lessor pursuant to the terms
of Section 7.1, to collect upon, but not prior to accrual, all of
the Rents and Lessee shall receive the Rents and hold the same,
as well as the right and license to receive the Rents, as a trust
fund to be applied, and Lessee hereby covenants to apply the
Rents, to the payment, satisfaction and discharge of the
Obligations then due, including specifically, but without
limitation, to the payment of taxes and assessments upon the
Property before payment of penalty or interest are due thereon,
to the cost of such insurance then due, maintenance and repairs
as may be required by the terms of the Security Documents and in
satisfaction of all obligations under the Tenant Leases then due;
all prior to the application by Lessee of the Rents for any other
purposes. The License shall also include the right of Lessee to
execute, deliver, perform, enforce, alter, modify, change or
supplement the terms of the Tenant Leases and to surrender,
cancel or terminate such Tenant Leases without the prior written
consent of Lessor except for any of the Tenant Leases executed,
modified or supplemented after the date hereof whose term
(including any possible extensions on the part of the applicable
Tenant) extends beyond the Term of the Lease. Thereafter, so
long as there exists no Event of Default hereunder or under any
of the Security Documents, Lessee may use the Rents in any manner
not inconsistent with the Security Documents. Upon the sale and
conveyance by Lessor or its successors or assigns of the title to
the Property, all right, title, interest and power granted under
the License granted herein shall be automatically continued
subject to the terms and conditions of the Lease and any of the
other Security Documents.
3.2 Continuation and Termination of Assignment.
------------------------------------------
Upon final payment, performance and discharge in full of the
Obligations, this Assignment shall become and be void and of no
force or effect. Written demand by Lessor delivered to any
Tenant for payment of the Rents by reason of the occurrence of
any Event of Default claimed by Lessor, and the then existence
thereof, shall be sufficient evidence of each such Tenant's
obligation and authority to make all future payments of the Rents
to Lessor without the necessity for further consent by Lessee.
3.3 Permitted Contests.
------------------
Lessee, after ten days' prior written notice to Lessor, on its
own or on Lessor's behalf (or in Lessor's name), but at Lessee's
expense, may contest, by appropriate legal proceedings conducted
in good faith and with due diligence, the amount, validity or
application, in whole or in part, of any of the Obligations which
is required to be paid or discharged by Lessee pursuant to the
terms of Section 3.1 pursuant to the terms and conditions of
Article XI of the Lease; provided that nothing contained herein
shall be construed to permit Lessee to contest the payment of the
rent or any other sums payable by Lessee to Lessor under the
Lease.
ARTICLE 4.
WARRANTIES AND REPRESENTATIONS
------------------------------
Lessee hereby unconditionally warrants and represents to
Lessor as follows:
4.1 Ownership of Tenant Leases and the Rents.
----------------------------------------
Subject to the terms of the Lease, Lessee has good title to the
Tenant Leases not previously transferred or assigned to Lessor
and the Rents and has all requisite right, power and authority to
assign such Tenant Leases and the Rents to Lessor, and no other
person, firm or corporation has any right, title or interest
therein.
4.2 No Default.
----------
Lessee has duly and punctually performed, all and singular, the
terms, covenants, conditions and warranties of the Tenant Leases
on Lessee's part to be kept, observed and performed; and, to the
best of Lessee's knowledge, the Tenants thereunder are not in
material default of any of the terms or provisions of the
respective Tenant Leases.
4.3 No Modification of the Tenant Leases or Anticipation or
-------------------------------------------------------
Hypothecation of the Rents.
--------------------------
The Tenant Leases are valid and unmodified, except as indicated
herein, and remain in full force and effect; Lessee has not
previously sold, assigned, transferred, or pledged the Tenant
Leases or the Rents, or any part thereof, whether now due or
hereafter to become due, except for the sales, assignments,
transfers, mortgages and pledges for which Lessee has heretofore
obtained a full release; the Rents now due, or to become due, for
any periods subsequent to the date hereof have not been collected
and that payment thereof has not been anticipated, waived or
released, discounted, set off or otherwise discharged or
compromised; and Lessee has not received any funds or deposits
from any Tenant for which credit has not already been made on
account of the accrued Rents.
ARTICLE 5.
AFFIRMATIVE COVENANTS
---------------------
Lessee hereby unconditionally covenants and agrees with
Lessor as follows:
5.1 Performance.
-----------
Lessee shall observe, perform and discharge, duly and punctually,
all and singular, the obligations, terms, covenants, conditions
and warranties of the Tenant Leases to be observed, performed or
discharged by landlord thereunder; and Lessee shall promptly
deliver to Lessor any notices received with respect to the Tenant
Leases alleging any failure on the part of the Lessee to observe,
perform and discharge the same.
5.2 Notification to Tenants.
-----------------------
Upon written request by Lessor, Lessee shall notify and direct,
in writing, such and every present or future Tenant that any
Credit Enhancement delivered to Lessee by such Tenant shall be
retained by Lessee but assigned to Lessor.
5.3 Enforcement.
-----------
Lessee shall enforce or secure in the name of Lessee the
performance of each and every obligation, term, covenant,
condition and agreement in the Tenant Leases by any Tenant to be
performed, and Lessee shall appear in and defend any action or
proceeding arising under, occurring out of or in any manner
connected with the Tenant Leases or the obligations, duties or
liabilities of Lessee and any Tenant thereunder, and upon request
by Lessor, Lessee will do so in the name and on behalf of Lessor,
but at the expense of Lessee, and Lessee shall pay all costs and
expenses of Lessor, including reasonable attorneys' fees and
disbursements, in any action or proceeding in which Lessor may
appear.
5.4 Anticipation or Hypothecation of the Rents.
------------------------------------------
Lessee hereby covenants and agrees (a) upon and after an Event of
Default hereunder or under any of the Security Documents and
while the same shall continue, to give to Lessor duplicate notice
of each default by each Tenant and copies of any and all notices
and communications received from any Tenant promptly upon
delivery or receipt thereof; (b) to comply with the terms and
provisions of each Tenant Lease; (c) not to assign, transfer,
pledge, mortgage or otherwise encumber any Tenant Lease; (d) not
to assign, transfer, pledge, mortgage or otherwise encumber any
Rents; (e) not to collect, accept from any Tenant, or permit any
Tenant to pay any Rents for more than one month in advance
(whether in cash or by evidence of indebtedness); (f) except in
the ordinary course of business and in accordance with past
practice and custom, not to waive, excuse, condone, discount,
set-off, compromise or in any manner release or discharge any
Tenant of and from any obligations, covenants, conditions or
agreements to be kept, observed or performed by such Tenant,
under and in accordance with the terms of the respective Tenant
Lease; and (g) not to enter into any Tenant Lease or amend,
modify, extend or renew any Tenant Lease for a time period
extending beyond the term of the Lease, without prior written
approval of Lessor, which approval shall not be unreasonably
withheld.
5.5 Delivery of the Tenant Leases; Further Acts and
-----------------------------------------------
Assurance.
---------
Until the Obligations secured hereby have been paid in full,
performed and discharged, Lessee shall enter into only leases of
the Property in a form approved in writing by Lessor and shall
upon the written request of Lessor deliver executed copies of all
existing and all other and future Tenant Leases when executed
upon all or any part of the Property and will transfer and assign
such other and future Tenant Leases upon the same terms and
conditions as herein contained, and Lessee hereby covenants and
agrees to make, execute and deliver to Lessor, upon demand and at
any time or times, any and all assignments and other documents
and instruments which Lessor may deem advisable to carry out the
true purpose and intent of this Assignment.
ARTICLE 6.
EVENTS OF DEFAULT
-----------------
The term "Event of Default", as used herein, shall mean the
occurrence or happening, at any time and from time to time, of
any one or more of the following:
6.1 Performance of Obligations. If Lessee shall fail,
--------------------------
refuse or neglect to perform and discharge fully and timely any
of its obligations hereunder and such failure is not cured by
Lessee within a period of 30 days after receipt by Lessee of
written notice thereof from Lessor, unless such failure cannot
with due diligence be cured within a period of 30 days, in which
case such failure shall not be deemed to continue if Lessee
proceeds promptly and with due diligence to cure the failure and
diligently completes the curing thereof (as soon as reasonably
possible).
6.2 Security Documents. The occurrence of any Event of
------------------
Default under and as defined in the Lease or any other of the
Security Documents.
ARTICLE 7.
REMEDIES
--------
7.1 Remedies. Upon or any time after the occurrence, and
--------
during the continuance thereof, of an Event of Default hereunder,
Lessor, at its option, shall have the complete right, power and
authority hereunder, then or thereafter until the Event of
Default is cured, to exercise and enforce any or all of the
following rights and remedies set out in this Article 7:
(a) To terminate the License and then and thereafter,
without taking possession of the Property, to the extent
permitted by law, in Lessee's own name, to demand, collect,
receive, sue for, attach and levy the Rents and give proper
receipts, releases and acquittances therefor, and after deducting
all necessary and proper costs and expenses of operation and
collection, as determined by Lessor, including reasonable
attorneys' fees, and apply the net proceeds thereof, together
with any funds of Lessee deposited with Lessor, in reduction or
repayment of the Obligations in such order of priority as Lessor
may, in its sole discretion, determine in accordance with
applicable law;
(b) To declare the Lease in default and, at its option,
exercise all of the rights and remedies contained in the Lease or
any other of the Security Documents;
(c) Without regard to the adequacy of the security, with or
without any action or proceeding through any person or by any
agent, or by the trustee under any deed of trust included among
the Security Documents, or by a receiver to be appointed by a
court of competent jurisdiction, and irrespective of Lessee's
possession, then or thereafter to enter upon, take possession of,
manage and operate the Property or any part thereof; make,
modify, enforce, cancel or accept surrender of a Tenant Lease now
in effect or hereafter in effect on the Property or any part
thereof; remove and evict any Tenant (subject to the provisions
of any non-disturbance and attornment agreement entered into by
and between Lessor and any Tenant); increase or decrease the
Rents under a Tenant Lease; decorate, clean and repair, and
otherwise do any act or incur any cost or expense which Lessor
may deem reasonably necessary to protect the status and value of
the Property as fully and to the same extent as Lessee could do
if in possession thereof; and in such event, to apply the Rents
so collected to the operation and management of the Property, but
in such order or priority as Lessor shall deem proper, and
including the payment of reasonable management, brokerage and
attorneys' fees and disbursements, and payment of the Obligations
and to the establishment and maintenance, without interest, of a
reserve for replacements; and
(d) Any other remedy available to Lessor at law or in
equity.
7.2 Exculpation of Lessor. The acceptance by Lessor of
---------------------
this Assignment, with all of the rights, powers, privileges and
authority created hereby, shall not, prior to entry upon and
taking possession of the Property by Lessor, be deemed or
construed to constitute Lessor a "mortgagee in possession", nor
thereafter or at any time or in any event obligate Lessor to take
any action hereunder or to expend any money or incur any expenses
or perform or discharge any obligation, duty or liability under a
Tenant Lease or to assume any obligation or responsibility for
any security deposits or other deposits delivered to Lessee by a
Tenant and not assigned and delivered to Lessor, nor shall Lessor
be liable in any way for any injury or damage to persons or
property sustained by any person, firm or corporation in or about
the Property not attributable to the negligence or fault of
Lessor, its agents or affiliates.
7.3 No Waiver or Election of Remedies.
---------------------------------
(a) Waiver. Neither the collection of the Rents and
------
application as provided for in this Assignment nor the entry upon
and taking possession of the Property by Lessor shall be deemed
to cure or waive any Event of Default or waive, modify or affect
any notice of default under any Security Document or invalidate
any act done pursuant to any such notice. If Lessor shall
thereafter elect to discontinue the exercise of any such right or
remedy hereunder, such right or remedy may be reasserted at any
time and from time to time following any subsequent Event of
Default.
(b) Election of Remedies. The failure of Lessor to assert
--------------------
any of the terms, covenants or conditions of this Assignment for
any period of time or at any time or times shall not be construed
or deemed to be a waiver of any such right, and nothing herein
contained nor anything done or omitted to be done by Lessor
pursuant to this Assignment shall be deemed to be an election of
remedies or a waiver by Lessor of any of its rights and remedies
under any other Security Document or under the law. The right of
the Lessor to collect and enforce the payment and performance of
the Obligations and to enforce any security therefor may be
exercised by the Lessor either prior to or simultaneously with or
subsequent to any action taken hereunder.
7.4 Appointment of Attorney-in-Fact. Upon and following
-------------------------------
the occurrence of an Event of Default remaining uncured, Lessee
hereby constitutes and appoints Lessor the true and lawful
attorney-in-fact, coupled with an interest, of Lessee and in the
name, place and stead of Lessee to demand, sue for, attach, levy,
recover and receive any premium or penalty payable upon the
exercise by a Tenant under a Tenant Lease of a privilege of
cancellation originally provided in such Tenant Lease and to give
proper receipts, releases and acquittances therefor and, after
deducting expenses of collection, to apply the net proceeds as a
credit upon any portion of the Obligations selected by Lessor,
notwithstanding the fact that such portion of the Obligations may
not then be due and payable or that such portion of the
Obligations is otherwise adequately secured; and Lessee does
hereby authorize and direct any such Tenant to deliver such
payment to Lessor in accordance with this Assignment, and Lessee
hereby ratifies and confirms that Lessor, as attorney-in-fact,
shall do or cause to be done by virtue of the powers granted
hereby. Under the circumstances referred to in this Section 7.4,
the foregoing appointment is irrevocable and continuing, and such
rights, powers and privileges shall be exclusive in Lessor, its
successors and assigns, so long as any part of the Obligations
secured hereby remain unpaid and undischarged.
ARTICLE 8.
MISCELLANEOUS
-------------
8.1 Name of Facility. Lessee intends to call and market
----------------
the Facility under the name "Grand Court - [name of the
geographic area]." Lessor agrees that it does not have and never
will have any right, title or interest in such name, or any name
similar thereto, and shall never use the same.
8.2 Performance at Lessee's Expense. The cost and expense
-------------------------------
of performing or complying with any and all of the Obligations
shall be borne solely by Lessee, and no portion of such cost and
expense shall be, in any way and to any extent credited against
any installment on or portion of the Obligations.
8.3 Survival of Obligations. Each and all of the
-----------------------
Obligations shall survive that execution and delivery of the
Security Documents and the consummation of the transaction called
for therein, and shall continue in full force and effect until
the Obligations shall have been paid and performed in full.
8.4 Further Assurances. Lessee, upon the request of
------------------
Lessor, will execute, acknowledge, deliver and record and/or file
such further instruments and do such further acts as may be
necessary, desirable or proper to carry out more effectively the
purpose of the Security Documents and to subject to the liens and
security interests thereof any property intended by the terms
thereof to be covered thereby, including specifically, but
without limitation, any renewals, substitutions, replacements,
modifications or amendments to the Tenant Leases.
8.5 Recording and Filing. Lessee will cause the Security
--------------------
Documents and all amendments and supplements thereto and
substitutions therefor to be recorded, filed, re-recorded and
refiled in such manner and in such places as Lessor shall
reasonably request, and will pay all such recording, filing, re-
recording and refiling taxes, fees and other charges.
8.6 Notices. Any notices, demands, approvals and other
-------
communications provided for in this Assignment shall be in
writing and shall be delivered by telephonic facsimile, overnight
air courier, personal delivery or registered or certified U.S.
Mail with return receipt requested, postage paid, to the
appropriate party at its address as follows:
If to Lessor:
CAPSTONE CAPITAL CORPORATION
1000 Urban Center Drive, Suite 630
Birmingham, Alabama 35242
Attention: Mr. John W. McRoberts
Telephone: (205) 967-2092
Telecopy: (205) 967-9066
with a copy to:
Thomas A. Ansley, Esq.
Sirote & Permutt, P. C.
2222 Arlington Avenue
Birmingham, Alabama 35205
Telephone: (205) 930-5300
Telecopy: (205) 930-5301
If to Lessee:
GRAND COURT LIFESTYLES, INC.
One Executive Drive
Fort Lee, New Jersey 07024
Attention: Mr. Paul Jawin
Telephone: (201) 947-7322
Telecopy: (201) 947-6663
with a copy to:
Robert W. Strauss, Esq.
Strasburger & Price, L.L.P.
901 Main Street, Suite 4300
Dallas, Texas 75202
Telephone: (214) 651-4629
Telecopy: (214) 651-4330
Addresses for notice may be changed from time to time by
written notice to all other parties. Any communication given by
mail will be effective (i) upon the earlier of (a) three business
days following deposit in a post office or other official
depository under the care and custody of the United States Postal
Service or (b) actual receipt, as indicated by the return
receipt; (ii) if given by telephone facsimile, when sent; and
(iii) if given by personal delivery or by overnight air courier,
when delivered to the appropriate address set forth.
8.7 Successors and Assigns. All of the terms of the
----------------------
Security Documents shall apply to, be binding upon and inure to
the benefit of the parties hereto, their successors, assigns,
heirs and legal representatives, and all other persons claiming
by, through or under them.
8.8 No Waiver; Severability. Any failure by Lessor to
-----------------------
insist, or any election by Lessor not to insist, upon strict
performance by Lessee of any of the terms, provisions or
conditions of the Security Documents shall not be deemed to be a
waiver of same or any other terms, provisions or conditions
thereof, and Lessor shall have the right at any time or times
thereafter to insist upon strict performance by Lessee of any and
all such terms, provisions and conditions. The Security
Documents are intended to be performed in accordance with, and
only to the extent permitted by, all applicable legal
requirements. If any provision of any of the Security Documents
or the application thereof to any person or circumstance shall,
for any reason and to any extent, be invalid or unenforceable,
then neither the remainder of the instrument in which such
provision to other persons or circumstances nor the other
instruments referred to herein shall be affected thereby, but
rather, shall be enforced to the greatest extent permitted by
law.
8.9 Entire Agreement and Modification. This Assignment
---------------------------------
contains the entire agreement between the parties relating to the
subject matter hereof and thereof, and all prior agreements
relative thereto which are not contained herein or therein are
terminated. This Assignment may not be amended, revised, waived,
discharged, released or terminated orally, but only by a written
instrument or instruments executed by the party against which
enforcement of the amendment, revision, waiver, discharge,
release or termination is asserted. Any alleged amendment,
revision, waiver, discharge, release or termination which is not
so documented shall not be effective as to any party.
8.10 Counterparts. This Assignment may be executed in any
------------
number of counterparts, each of which shall be an original, but
all of which together shall constitute but one instrument.
8.11 Applicable Law. The Security Documents shall be
--------------
governed by and construed according to the laws of the State of
Alabama from time to time in effect except to the extent
preempted by United States federal law. It is expressly
stipulated and agreed to be the intent of Lessee and Lessor at
all times to comply with applicable law now or hereafter
governing any interest payable under the Lease, including any
notes evidencing the Obligations or any part thereof. If the
applicable law is ever revised, repealed or judicially
interpreted so as to render usurious any amount called for under
any of the Security Documents, or if Lessor's exercise of the
option to accelerate the maturity of the Obligations or if any
prepayment by Lessee results in Lessee having paid any interest
in excess of that permitted by law, then it is Lessee's and
Lessor's express intent that all excess amounts theretofore
collected by Lessor be credited on the principal balance of the
Obligations (or, if the Obligations have been paid in full,
refunded to Lessee), and the provisions of the Security Documents
immediately be deemed reformed and the amounts thereafter
collectible hereunder and thereunder reduced, so as to comply
with the then applicable law, but so as to permit the recovery of
the fullest amount otherwise called for hereunder or thereunder.
All sums paid or agreed to be paid to Lessor for the use,
forbearance or detention of the Obligations shall, to the extent
permitted by applicable law, be amortized, prorated, allocated
and spread throughout the full term of the Obligations until
payment in full so that the rate or amount of interest on account
of such Obligations does not exceed the usury ceiling from time
to time in effect and applicable to the Obligations so long as
debt is outstanding thereunder.
8.12 Headings. The Article, Paragraph and Subparagraph
--------
entitlements hereof are inserted for convenience of reference
only and shall in no way alter, modify or define, or be used in
construing, the text of such Articles, Paragraphs or
Subparagraphs.
EXECUTED as of the date first above written, to be effective
as of the date first above written.
LESSOR:
CAPSTONE CAPITAL CORPORATION
a Maryland corporation
______________________________
John W. McRoberts
President
LESSEE
GRAND COURT LIFESTYLES, INC.
a Delaware corporation
By____________________________
Its___________________________
STATE OF ALABAMA )
:
JEFFERSON COUNTY )
I, the undersigned authority, a Notary Public in and for
said county in said state, hereby certify that John W. McRoberts,
whose name as President of CAPSTONE CAPITAL CORPORATION, a
Maryland corporation, is signed to the foregoing instrument and
who is known to me, acknowledged before me on this day that,
being informed of the contents of the said instrument, he, as
such officer and with full authority, executed the same
voluntarily for and as the act of said corporation.
GIVEN under my hand and seal, this _____ day of
____________________, 1996.
[ NOTARIAL SEAL ] _________________________
Notary Public
My Commission Expires_________
STATE OF __________ )
:
__________ COUNTY )
I, the undersigned authority, a Notary Public in and for
said county in said state, hereby certify that
________________________________, whose name as
________________________ of GRAND COURT LIFESTYLES, INC., a
delaware corporation, is signed to the foregoing instrument and
who is known to me, acknowledged before me on this day that,
being informed of the contents of the said instrument, he, as
such officer and with full authority, executed the same
voluntarily for and as the act of said company.
GIVEN under my hand and seal, this _____ day of
____________________, 1996.
[ NOTARIAL SEAL ] _________________________
Notary Public
My Commission Expires_________
<PAGE>
EXHIBIT A
PROPERTY DESCRIPTION
Exhibit 10.9(a)
FIRST AMENDMENT TO ASSUMPTION AGREEMENT
---------------------------------------
FIRST AMENDMENT TO ASSUMPTION AGREEMENT dated as of the 10th
day of September, 1996 between GRAND COURT LIFESTYLES, INC., a
Delaware corporation, having an office at One Executive Drive,
Fort Lee, New Jersey 07024 ("Grand"), Sterling National Bank &
Trust Company of New York, having an office at 540 Madison
Avenue, New York, New York 10022 ("Sterling"), John Luciani and
Bernard M. Rodin.
W I T N E S S E T H:
WHEREAS, J&B Management Company ("J&B") executed that
certain Loan Agreement dated May 7, 1985 (the "Loan Agreement"),
between J&B and Sterling to borrow from and repay Sterling, on a
revolving basis, an amount not to exceed $15 million;
WHEREAS, Sterling, Grand, John Luciani and Bernard M. Rodin
entered into that certain Assumption Agreement dated September
10, 1996 (the "Assumption Agreement") whereby Grand assumed J&B's
obligations under the terms of the Loan Agreement except as
limited by paragraph 7(iii) of the Assumption Agreement;
WHEREAS, pursuant to paragraph 3 of the Assumption
Agreement, Grand represented that all representations contained
in the Loan Agreement, as modified by the Assumption Agreement,
are true and correct as of the date of the Assumption Agreement;
WHEREAS, it is necessary to amend paragraph 3 of the
Assumption Agreement to correct such representation;
NOW, THEREFORE, in consideration of Ten Dollars ($10.00) and
other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree
as follows:
1. Section 3 of the The Assumption Agreement is deleted and
replaced with the following:
Grand hereby ratifies and confirms all of the terms,
covenants and conditions contained in the Loan
Documents, and represents that all of the
representations and warranties set forth in the Loan
Documents except for the representations contained in
(i) Section 3.16 of the Loan Agreement relating to the
condition of the projects owned by Owing Partnerships
affiliated with the following partnerships: Baskerville
Associates, Drake Associates, Gateway Nine Associates,
Gateway Ten Associates, Golden Home Associates, Monroe
Place Associates, New Iberia Associates, Newport
Associates, Oak Hills Associates, Silver Springs
Associates, and Whitney Associates (collectively the
"Relevant Owning Partnerships"), (ii) Section 3.1 as
such representations relate to the Relevant Owning
Partnerships, (iii) Section 3.8 as such representations
relate to the Relevant Owning Partnerships and (iv)
Section 3.10 as such representations relate to the
Relevant Owning Partnerships, as modified by the
Assumption Agreement, are true and correct as of the
date hereof.
2. Luciani and Rodin agree to guarantee the liabilities of
Grand which are secured by investor notes payable to Baskerville
Associates, Gateway Nine Associates, Monroe Place Associates, New
Iberia Associates, Newport Associates, Oak Hills Associates,
Silver Springs Associates, and Whitney Associates and to execute
a guaranty of all liabilities and security agreement relating to
such liabilities. The liabilities secured by investor notes
which are payable to Golden Home Associates, Gateway 10
Associates and Drake Associates were previously guaranteed by
Luciani and Rodin.
3. To the extent that any of the terms, covenants and
provisions of this Amendment shall be inconsistent with the
provisions contained in the Assumption Agreement or Loan
Documents, then the provisions hereof shall govern and control.
4. This Amendment may not be terminated or modified,
except by an instrument in writing subscribed by the party
against whom enforcement of such modification, change, waiver,
discharge or termination is sought.
5. All of the terms, conditions, warranties,
representations and covenants of this Amendment shall apply and
be binding upon, and shall inure to the benefit of, each party,
and their respective successors and assigns.
6. This Amendment may be executed in any number of
counterparts and each counterpart will, for all purposes, be
deemed to be an original, and all counterparts will together
constitute one instrument.
IN WITNESS WHEREOF, the parties hereto have executed this
Assumption Agreement on the date and year first above written.
GRAND COURT LIFESTYLES, INC.
By: /s/ Bernard M. Rodin
---------------------------
Bernard M. Rodin, President
/s/ John Luciani
-------------------------------
John Luciani
/s/ Bernard M. Rodin
--------------------------------
Bernard M. Rodin
STERLING NATIONAL BANK & TRUST
COMPANY OF NEW YORK
By: /s/ S. V. Colonna
-----------------------------
Executive Vice President
Exhibit 10.10(a)
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE OFFERED
AND SOLD OR OTHERWISE TRANSFERRED ONLY IF REGISTERED
PURSUANT TO THE PROVISIONS OF THAT ACT OR IF
AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
GRAND COURT LIFESTYLES, INC.
13.125% RETIREMENT FINANCING NOTES-III DUE OCTOBER 31, 2001
$_________________________ ____________________, 199_
Registered Owner: ________________________________________
Certificate Number: ________________________________________
FOR VALUE RECEIVED, the undersigned, Grand Court
Lifestyles, Inc., a Delaware corporation (the "Company"), hereby
promises to pay to the registered owner specified above or
registered assigns, the principal amount specified above on
October 31, 2001, together with accrued but unpaid interest.
Interest on the unpaid balance of this Note from the date hereof,
shall be payable monthly on the 15th day of each month hereafter
if such day is a Business Day (as hereinafter defined), at the
rate of 13.125% per annum until the entire principal amount of
this Note shall have been paid. If such day is not a Business
Day, the next Business Day shall mean any day other than a day on
which The Bank of New York is authorized to remain closed in New
York City. Interest on any overdue principal (including any
overdue prepayment of principal) and (to the extent permitted
under applicable law) on any overdue installment of interest, at
the rate of 13.125% per annum until paid, shall be payable
monthly as aforesaid or, at the option of the holder hereof, on
demand. Interest shall be computed on the basis of a year of 360
days.
Payments of principal and interest shall be made in
lawful money of the United States of America by check mailed to
the address of the registered owner of this Note at the
registered owner's address as it appears in the register.
This Note is one of the 13.125% Retirement Financing
Notes-III due October 31, 2001 of the Company (the "Notes"),
originally issued in the principal amount of $__________________
pursuant to the Subscription Agreement, dated as of
________________, 199_ (the "Subscription Agreement"), between
the Company and the purchaser named therein, and the Bank
Agreement, dated as of September 6, 1996 (the "Bank Agreement")
between the Company and The Bank of New York (the "Bank").
Reference is hereby made to the Subscription Agreement and the
Bank Agreement and to all amendments and supplements thereto for
a description of the terms and conditions upon which this Note is
issued and the rights, duties and obligations of the Company, the
Bank and the holder of this Note. Copies of the Subscription
Agreement and the Bank Agreement are on file in the principal
corporate trust office of the Bank.
<PAGE>
-2-
This Note will be without recourse to the officers,
directors, and shareholders of Grand Court Lifestyles, Inc.
This Note shall be governed by the laws of the State of
Delaware.
IN WITNESS WHEREOF, the Company has caused this Note to
be executed by its officer thereunto duly authorized, the day and
year first above written.
GRAND COURT LIFESTYLES, INC.
By:___________________________
Name:
Title:
<PAGE>
CERTIFICATE OF AUTHENTICATION
This Note is one of the Notes of the issue described in
the within mentioned Bank Agreement.
THE BANK OF NEW YORK
By:____________________________
Authorized Signatory
Date of Authentication: ___________
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned sells, assigns and
transfers unto __________________________ the within Note and
does hereby irrevocably constitute and appoint
__________________________ attorney to transfer the said Note on
the books kept for registration thereof, with full power of
substitution in the premises.
Date:________________ ____________________________
Signature Guaranteed:
_____________________
NOTICE: The signature to this assignment must correspond with
the name of the registered owner as it appears upon the
face of the within Note in every particular, without
alteration or enlargement or any change whatever.
Exhibit 10.10(b)
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE OFFERED
AND SOLD OR OTHERWISE TRANSFERRED ONLY IF REGISTERED
PURSUANT TO THE PROVISIONS OF THAT ACT OR IF
AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
GRAND COURT LIFESTYLES, INC.
13.125% RETIREMENT FINANCING NOTES-IV DUE MARCH 31, 2002
$___________________ ______________, 199_
Registered Owner: _________________________________
Certificate Number: _________________________________
FOR VALUE RECEIVED, the undersigned, Grand Court
Lifestyles, Inc., a Delaware corporation (the "Company"), hereby
promises to pay to the registered owner specified above or
registered assigns, the principal amount specified above on
March 31, 2002, together with accrued but unpaid interest.
Interest on the unpaid balance of this Note from the date hereof,
shall be payable monthly on the 15th day of each month hereafter
if such day is a Business Day (as hereinafter defined), at the
rate of 13.125% per annum until the entire principal amount of
this Note shall have been paid. If such day is not a Business
Day, the next Business Day shall mean any day other than a day on
which The Bank of New York is authorized to remain closed in New
York City. Interest on any overdue principal (including any
overdue prepayment of principal) and (to the extent permitted
under applicable law) on any overdue installment of interest, at
the rate of 13.125% per annum until paid, shall be payable
monthly as aforesaid or, at the option of the holder hereof, on
demand. Interest shall be computed on the basis of a year of 360
days.
Payments of principal and interest shall be made in
lawful money of the United States of America by check mailed to
the address of the registered owner of this Note at the
registered owner's address as it appears in the register.
This Note is one of the 13.125% Retirement Financing
Notes-IV due March 31, 2002 of the Company (the "Notes"),
originally issued in the principal amount of $__________________
pursuant to the Subscription Agreement, dated as of
________________, 199_ (the "Subscription Agreement"), between
the Company and the purchaser named therein, and the Bank
Agreement, dated as of October 22, 1996 (the "Bank Agreement")
between the Company and The Bank of New York (the "Bank").
Reference is hereby made to the Subscription Agreement and the
Bank Agreement and to all amendments and supplements thereto for
a description of the terms and conditions upon which this Note is
issued and the rights, duties and obligations of the Company, the
Bank and the holder of this Note. Copies of the Subscription
Agreement and the Bank Agreement are on file in the principal
corporate trust office of the Bank.
<PAGE>
-2-
This Note will be without recourse to the officers,
directors, and shareholders of Grand Court Lifestyles, Inc.
This Note shall be governed by the laws of the State of
Delaware.
IN WITNESS WHEREOF, the Company has caused this Note to
be executed by its officer thereunto duly authorized, the day and
year first above written.
GRAND COURT LIFESTYLES, INC.
By:__________________________________
Name:
Title:
<PAGE>
CERTIFICATE OF AUTHENTICATION
This Note is one of the Notes of the issue described in
the within mentioned Bank Agreement.
THE BANK OF NEW YORK
By:____________________________
Authorized Signatory
Date of Authentication: ____________
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned sells, assigns and
transfers unto __________________________ the within Note and
does hereby irrevocably constitute and appoint ___________________
attorney to transfer the said Note on the books kept for registration
thereof, with full power of substitution in the premises.
Date:________________ ____________________________
Signature Guaranteed:
_____________________
NOTICE: The signature to this assignment must correspond with
the name of the registered owner as it appears upon the
face of the within Note in every particular, without
alteration or enlargement or any change whatever.
Exhibit 10.11(a)
BANK AGREEMENT
THIS BANK AGREEMENT, dated as of September 6, 1996 (as
amended, modified or supplemented from time to time, the "Bank
Agreement"), is by and among Grand Court Lifestyles, Inc., a
Delaware corporation (the "Company") and The Bank of New York
(the "Bank").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company is issuing its Notes Retirement
Financing Notes-III due October 31, 2001 (the "Notes") pursuant
to the Company's Confidential Private Placement Memorandum, as
the same may be from time to time amended (the "Memorandum"); and
WHEREAS, the Company's private placement of the Notes
(the "Offering") will terminate on the earlier of (i) the date on
which all the Notes are sold or (ii) December 31, 1997 (the
"Offering Termination Date"); and
WHEREAS, subscribers will purchase Notes at a closing
(the "Initial Closing") to be held when at least $250,000
principal amount of Notes have been sold and, thereafter, from
time to time (each, singly, an "Additional Closing," and,
collectively, the "Additional Closings"), at the discretion of
the Company, on such day or days as may be determined by the
Company, as subscriptions are received and accepted (hereinafter
the date of the Initial Closing and the date of any Additional
Closing are each referred to as a "Closing Date"); and
WHEREAS, the Company desires to deliver to the Bank
amounts received by the Company from subscribers for Notes (each,
singly, a "Purchaser," and, collectively, the "Purchasers"), in
payment for the Notes, which amounts shall be released to the
Company at the Initial Closing and at each Additional Closing;
and
WHEREAS, each Purchaser shall be entitled to receive,
on a monthly basis prior to the Closing Date with respect to that
Purchaser's Notes, distributions representing interest accrued on
that Purchaser's subscription payment at a rate of 13.125% per
annum; and
WHEREAS, the Company desires to establish an interest
bearing escrow fund to be called the Retirement Financing
Notes-III Escrow Fund Account (the "Fund") with the Bank; and
WHEREAS, each Purchaser shall be entitled to receive,
on a monthly basis after the Closing Date with respect to that
Purchaser's Notes, interest on his Note at the rate of 13.125%
per annum; and
WHEREAS, the Company wishes to appoint the Bank as
Escrow Agent, Authenticating Agent, Paying Agent, Registrar and
Transfer Agent with respect to the Notes and the Bank is willing
to accept such appointments upon the terms and conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the foregoing
premises and the mutual covenants herein contained and other good
and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto hereby agree as follows:
Section 1. Escrow Agent.
------------
Section 1.1 Appointment.
-----------
The Company hereby appoints and designates the Bank as
Escrow Agent for the purposes set forth in this Section 1, and
the Bank hereby accepts such appointment.
Section 1.2 Escrow.
------
The Company shall from time to time deliver amounts
received from Purchasers in payment for the Notes ("Subscription
Payments") to the Bank. The Bank shall deposit the Subscription
Payments in the Fund to be established in the Company's name for
this purpose by the Bank. Subscription Payments delivered for
deposit in the Fund shall be invested in short term certificates
of deposit (including certificates of deposit issued by the
Bank), A-1 commercial paper, P-1 commercial paper, interest
bearing money market accounts, all as specified in writing by the
Company and held in trust for the benefit of Purchasers. In the
event the Company should fail to so specify, Subscription
Payments delivered for deposit in the Fund shall be invested in
the Bank's Deposit Reserve, an interest-bearing account, for the
benefit of the Purchasers. The Bank is not responsible for
interest, losses, taxes or other charges on investments. All
checks delivered to the Bank for deposit in the Fund shall be
payable to the order of "Retirement Financing Notes-III - Escrow
Account." Concurrently with such delivery, the Company shall
deliver to the Bank a statement of the name, mailing address and
tax identification number of each Purchaser whose Subscription
Payment is being delivered, and a schedule listing the aggregate
Notes and aggregate cumulative Subscription Payments to date
delivered for deposit in the Fund. The Bank shall deposit the
Subscription Payments to reflect multiple beneficiaries in
accordance with 12 CFR 330.4, 330.10. For the purposes of this
Bank Agreement, the Company is authorized to make deposits and
give instructions as to investments of deposits and otherwise, as
contemplated in this Bank Agreement, to the Bank.
Section 1.3 Interest.
--------
During the period (the "Escrow Period") commencing upon
the date that any Purchaser's Subscription Payment constitutes
Cleared Funds (as defined in Section 1.11 hereof) and ending on
the day immediately preceding the Closing Date with respect to
that Purchaser's Notes, interest will accrue on that Purchaser's
Subscription Payment at a rate of 13.125% per annum, computed on
the basis of a year of 360 days consisting of 12 thirty day
months. Interest shall be payable on the fifteenth day of each
month if such day is a Business Day. If such day is not a
Business Day, then the next Business Day shall be deemed the
Interest Payment Date (each, an "Interest Payment Date"). Four
Business Days prior to each such Interest Payment Date, the Bank
shall give the Company written notice of the difference between
the amount of interest which will be payable on Subscription
Payments on such Interest Payment Date and the amount of interest
accruing on the Fund which will be available for such payment on
such Interest Payment Date. Not later than 11:30 a.m. (New York
time) on such Interest Payment Date, the Company shall deposit
with the Bank the amount of such difference. On each Interest
Payment Date, the Bank shall pay interest which is due and
payable to the respective Purchasers by mailing its check in the
appropriate amount to each Purchaser by first class mail to the
Purchaser's mailing address provided to the Bank pursuant to
Section 1.2 hereof. In the event that the Company shall default
in its payment obligations to the Bank under this Section 1.3,
the Bank shall mail its check in the amount of each Purchaser's
pro rata share of interest earned and paid on the Fund's assets
as provided in this Section 1.3. For purposes of this Bank
Agreement, "Business Day" shall mean any day other than a day on
which the Bank is authorized to remain closed in New York City.
Section 1.4 The Initial Closing and Additional Closings.
-------------------------------------------
Upon the scheduling of the Initial Closing and each
Additional Closing, the Company shall give written notice thereof
to the Bank not less than one (1) Business Day prior to the date
scheduled for each such closing.
Section 1.5 Cancellation.
------------
The Company shall give the Bank notice of any Purchaser
who cancels his Subscription prior to his Closing Date or whose
Subscription Payment was deposited pursuant to Section 1.2 but
whose Subscription is rejected, setting forth the name and
mailing address of the Purchaser and the amount of the rejected
or cancelled subscription. As promptly as practicable
thereafter, the Bank shall pay the amount of the cancelled or
rejected subscription from the Fund to the Purchaser whose
Subscription was cancelled or rejected as directed by the
Company. Any interest earned thereon and not theretofore
distributed pursuant to Section 1.3 hereof shall be paid to the
Purchaser in accordance with Section 1.3 hereof. Payment shall
be made by check payable to the Purchaser mailed by the Bank by
first class mail directly to the Purchaser at the mailing address
of the Purchaser.
Section 1.6 Payment.
-------
(a) The Bank, at the Initial Closing and each
Additional Closing, upon written instruction from either Mr. John
Luciani and Mr. Bernard M. Rodin, as the designated officers of
the Company, shall transfer to the Company or to such third party
or parties as may be directed by Mr. Luciani or Mr. Rodin the
Cleared Funds then held in the Fund by the Bank. Any interest
earned thereon and not theretofore distributed in accordance with
Section 1.3 hereof shall be paid to the Purchasers in accordance
with Section 1.3 hereof.
(b) In the event that the Bank should receive written
instructions as contemplated in subparagraph (a) above from any
one other than Mr. Luciani or Mr. Rodin, regardless of whether
that person is an officer, director, employee, agent or
representative of the Company, those instructions are to be
deemed to be invalid and contrary to the intent of this Bank
Agreement.
Section 1.7 Fees and Expenses.
-----------------
In addition to the fees set forth in Section 7.3
hereof, the Bank shall be entitled to an administration fee as
compensation for its services under this Section 1 in the amount
of $5,000 payable (i) upon the execution and delivery of this
Bank Agreement and (ii) subject to an adjustment as provided in
the next succeeding sentence of this Section 1.7, on the first
anniversary date of this Bank Agreement, provided however, that
the Bank shall not be entitled to payment of an administration
fee on such first anniversary date if all of the Notes have been
sold prior thereto. In the event the Offering terminates prior
to December 31, 1997, the Company shall be entitled to a refund
payable ten days after the Offering Termination Date, of that
portion of the administration fee paid to the Bank on the first
anniversary date of the Bank Agreement, in an amount calculated
as the difference between (a) $5,000 and (b) the product of (x)
$5,000 and (y) a fraction, the numerator of which is the number
of days between the first anniversary date of this Bank Agreement
and the Offering Termination Date, inclusive, and the denominator
of which is 365. In no event shall the Bank be entitled to
payment of an administration fee, as provided for in this
Section 1.7, following the Offering Termination Date. The
Company shall also pay the Bank $5 for the preparation and
execution of each Purchaser's account including the calculation
of interest accrued; $1 for the preparation of each Purchaser's
1099 tax form; $25 for each investment transaction in the Fund;
$25 for each returned "bounced" check of a Purchaser; and $500
for each Additional Closing, payable within 10 days after the
Bank gives the Company notice that any such amounts are due and
payable. Notwithstanding anything herein to the contrary, the
Bank shall not charge the Company for the issuance of checks or
wire transfers to make monthly payments of accrued interest on
Subscription Payments. No additional fee will be payable with
respect to wire transfers of and unreturned checks for
Subscription Payments. In addition, the Company shall reimburse
the Bank for other actual out-of-pocket expenses incurred in
connection with its obligations pursuant to this Section 1
(including, but not limited to, actual expenses for stationery,
postage, telephone, telex, wire transfers, telecopy and retention
of records, and reasonable fees and expenses of counsel), payable
within ten (10) days after the Bank gives notice to the Company
that it has incurred such expenses. The obligation to pay such
compensation and reimburse such expenses shall be borne solely by
the Company. Amounts held in the Fund shall not be available to
satisfy this obligation or any other obligation of the Company to
the Bank. The provisions of this Section 1.7 shall survive the
termination of this Bank Agreement.
Section 1.8 Termination of Offering.
-----------------------
If the Offering should be terminated, the Company
shall promptly so advise the Bank in writing, and shall
authorize and direct the Bank to return the Subscription Payments
to the Purchasers. The Bank thereupon shall return those
Subscription Payments to the extent they have not been
distributed per Section 1.6 to the Purchasers from whom they were
received. Any interest earned on the Subscription Payments and
not theretofore distributed pursuant to Section 1.3 hereof shall
be paid in accordance with Section 1.3 hereof. Upon paying such
disbursements to the Purchasers and the Company, the Bank shall
be relieved of all of its obligations and liabilities under this
Bank Agreement.
Section 1.9 Form 1099, etc.
--------------
In compliance with the Internal Revenue Code of 1986,
as amended, the Company shall request that each Purchaser furnish
to the Bank such Purchaser's taxpayer identification number and a
statement certified under penalties of perjury that (a) such
taxpayer identification number is true and correct and (b) the
Purchaser is not subject to withholding of 31% of reportable
interest, dividends or other payments.
Section 1.10 Uncollected Funds.
-----------------
In the event that any funds, including Cleared Funds,
deposited in the Fund prove uncollectible after the funds
represented thereby have been released by the Bank pursuant to
this Bank Agreement, the Company shall reimburse the Bank upon
request for the face amount of such check or checks; and the Bank
shall, upon instruction from the Company, deliver the returned
checks or other instruments to the Company. This section shall
survive the termination of this Bank Agreement.
Section 1.11 Cleared Funds.
-------------
For the purpose of this Bank Agreement, Subscription
Payments shall constitute "Cleared Funds" in accordance with the
following:
(a) if paid by wire transfer, such funds shall
constitute Cleared Funds on the date received by the Bank;
(b) if paid by check drawn on a New York Clearing
House Bank, such funds shall constitute Cleared Funds on the
second Business Day following the date received by the Bank; and
(c) if paid by check drawn on any bank other than a
New York Clearing House Bank, such funds shall constitute Cleared
Funds on the third Business Day following the date received by
the Bank.
Section 2. Execution.
---------
The Notes shall be executed on behalf of the Company by
the manual or facsimile signature of an officer of the Company.
All such facsimile signatures shall have the same force and
effect as if the officer had manually signed the Notes. In case
any officer of the Company whose signature shall appear on a Note
shall cease to be such officer before the delivery of such Note
or the issuance of a new Note following a transfer or exchange,
such signature or such facsimile shall nevertheless be valid and
sufficient for all purposes, the same as if such officer had
remained an officer until delivery.
Section 3. Authenticating Agent.
--------------------
Section 3.1 Appointment.
-----------
The Company hereby appoints and designates the Bank as
Authenticating Agent for the purposes set forth in this
Section 3, and the Bank hereby accepts such appointment.
Section 3.2 Authentication.
--------------
Only such Notes as shall have the Certificate of
Authentication endorsed thereon in substantially the form set
forth in the form of Note attached to the Memorandum, duly
executed by the manual signature of an authorized signatory of
the Bank, shall be entitled to any right or benefit under this
Bank Agreement. No Notes shall be valid or obligatory for any
purpose unless and until such Certificate of Authentication shall
have been duly executed by the Bank; and such executed
certificate upon any such Note shall be conclusive evidence that
such Note has been authenticated and delivered under this Bank
Agreement. The Certificate of Authentication on any Note shall
be deemed to have been executed by the Bank if signed by an
authorized signatory of the Bank, but it shall not be necessary
that the same person sign the Certificate of Authentication on
all of the Notes.
Section 4. Mutilated, Lost, Stolen or Destroyed Notes.
-------------------------------------------
Subject to applicable law, in the event any Note is
mutilated, lost, stolen or destroyed, the Company may authorize
the execution and delivery of a new Note of like date, number,
maturity and denomination as that mutilated, lost, stolen or
destroyed, provided, however, that in the case of any mutilated
Note, such mutilated Note shall first be surrendered to the -
Company, and in the case of any lost, stolen or destroyed Note,
there shall be first furnished to the Company and the Bank,
evidence of the ownership thereof and of such loss, theft or
destruction satisfactory to the Company and the Bank, together
with indemnification through a note of indemnity or otherwise as
shall be satisfactory to the Company and the Bank. The Company
may charge the Purchaser of such Note with any amounts
satisfactory to the Company and the Bank and permitted by
applicable law.
Section 5. Registrar and Transfer Agent.
----------------------------
Section 5.1 Appointment.
-----------
The Company hereby appoints and designates the Bank as
Registrar and Transfer Agent for the purposes set forth in this
Section 5, and the Bank hereby accepts such appointment.
Section 5.2 Registration, Transfer and Exchange of
--------------------------------------
Notes.
-----
The Notes are issuable only as registered Notes without
coupons in the denomination of $100,000 or any multiple or any
fraction thereof at the sole discretion of the Company. Each
Note shall bear the following restrictive legend: "These
securities have not been registered under the Securities Act of
1933, as amended, and may be offered and sold or otherwise
transferred only if registered pursuant to the provisions of that
Act or if an exemption from registration is available." The Bank
shall keep at its principal corporate trust office a register in
which the Bank shall provide for the registration and transfer of
Notes. Upon surrender for registration of transfer of any Note
at such office of the Bank, the Company shall execute, pursuant
to Section 2 hereof, and mail by first class mail to the Bank,
and the Bank shall authenticate, pursuant to Section 3 hereof,
and mail by first class mail to the designated transferee, or
transferees, one or more new Notes in an aggregate principal
amount equal to the unpaid principal amount of such surrendered
Note, registered in the name of the designated transferee or
transferees. Every Note presented or surrendered for
registration of transfer shall be duly endorsed, or be
accompanied by a written instrument of transfer duly executed, by
the holder of such Note or his attorney duly authorized in
writing. Notwithstanding the preceding, the Notes may not be
transferred without an effective registration statement under the
Securities Act of 1933 covering the Notes or an opinion of
counsel satisfactory to the Company and its counsel that such
registration is not necessary under the Securities Act of 1933
(the "Securities Act"). At the option of the owner of any Note,
such Note may be exchanged for other Notes of any authorized
denominations, in an aggregate principal amount equal to the
unpaid principal amount of such surrendered Note, upon surrender
of the Note to be exchanged at the principal corporate trust
office of the Bank; provided, however, that any exchange for
denominations other than $100,000 or an integral multiple thereof
shall be at the sole discretion of the Company. Whenever any
Note is so surrendered for exchange, the Company shall execute,
pursuant to Section 2 hereof, and deliver to the Bank, and the
Bank shall authenticate, pursuant to Section 3 hereof, and mail
by first class mail to the designated transferee, or transferees,
the Note or Notes which the Note owner making the exchange is
entitled to receive. Any Note or Notes issued in exchange for
any Note or upon transfer thereof shall be dated the date to
which interest has been paid on such Note surrendered for
exchange or transfer, and neither gain nor loss of interest shall
result from any such exchange or transfer. In addition, each
Note issued upon such exchange or transfer shall bear the
restrictive legend set forth above unless in the opinion of
counsel to the Company, such legend is not required to ensure
compliance with the Securities Act.
Section 5.3 Owner.
-----
The person in whose name any Note shall be registered
shall be deemed and regarded as the absolute owner thereof for
all purposes, and payment of or on account of the principal of or
interest on such Note shall be made only to or upon the order of
the registered owner thereof or his duly authorized legal
representative. Such registration may be changed only as
provided in this Section 5, and no other notice to the Company or
the Bank shall affect the rights or obligations with respect to
the transfer of a Note or be effective to transfer any Note. All
payments to the person in whose name any Note shall be registered
shall be valid and effectual to satisfy and discharge the
liability upon such Note to the extent of the sum or sums to be
paid.
Section 5.4 Transfer Agent.
--------------
The Bank shall send executed, authenticated Notes to
Purchasers on Closing Dates as required and to subsequent owners
and transferees who are entitled to receive Notes pursuant to the
terms of this Bank Agreement, by first class mail.
Section 5.5 Charges and Expenses.
--------------------
No service charge shall be made for any transfer or
exchange of Notes, but in all cases in which Notes shall be
transferred or exchanged hereunder, as a condition to any such
transfer or exchange, the owner of the Note shall, prior to the
delivery of any new Note pursuant to such transfer or exchange,
reimburse the Company and the Bank for their respective actual
out-of-pocket expenses incurred in connection therewith
(including, but not limited to, any tax, fee or other
governmental charge required to be paid with respect to such
transfer or exchange, actual expenses for stationery, postage,
telephone, telex, wire transfers, telecopy and retention of
records, and reasonable fees and expenses of their respective
counsel). The provisions of this Section 5.5 shall survive the
termination of this Bank Agreement.
Section 5.6 Redemption at the Option of the Company.
---------------------------------------
(a) Whenever the Company shall effect a redemption at
the option of the Company, at any time in its sole and absolute
discretion, of part or all of the Notes, which shall be without
premium or penalty, the Company shall give written notice thereof
to the Bank at least forty (40) days prior to the date set forth
for redemption, the manner in which redemption shall be effected
and all the relevant details thereof. The Bank shall give
written notice to the Purchasers of that redemption at least
thirty (30) days prior to the date set forth for redemption in
the form included herewith as Exhibit A. The Bank shall register
the cancellation of the whole or a portion of the unredeemed
Notes, as appropriate. In any event, new Notes will not be
issued to reflect the non-redeemed portion of the Notes. No
interest shall be payable on the redeemed portion of a Note from
and after the date of redemption.
(b) The Bank hereby acknowledges that the Company may
effect a redemption at the option of the Company, at any time in
its sole and absolute discretion, of part or all of the Notes
without premium or penalty.
Section 5.7 Mandatory Redemption.
--------------------
The Company shall be obligated to redeem 100% of the
Notes due October 31, 2001. When the Company shall effect the
mandatory redemption, the Company shall give written notice
thereof to the Bank at least forty (40) days prior to the date
set forth for redemption, the manner in which redemption shall be
effected and all relevant details thereof. The Bank shall give
written notice to the Purchasers of that redemption at least
thirty (30) days prior to the date set forth for redemption in
the form included herewith as Exhibit B. The Bank shall register
the cancellation of the whole of the redeemed Notes.
Section 6. Paying Agent.
------------
Section 6.1 Appointment.
-----------
The Company hereby appoints and designates the Bank as
Paying Agent for the purposes set forth in this Section 6, and
the Bank hereby accepts such appointment.
Section 6.2 Payment Provisions.
------------------
(a) The Bank shall pay interest on Subscription
Payments and principal of and interest on the Notes to the
persons in whose names the Notes are registered, subject to the
limitations contained in Section 5.6(a), Section 5.7 and in
accordance with the terms and provisions of this Bank Agreement
and the Notes, by check mailed by first class mail to the
registered owner of a Note at his address as it appears in the
register; provided that not later than 11:30 a.m. (New York time)
on the Interest Payment Date or date on which principal of any
Note is due and payable, the Company shall provide the Bank with
sufficient funds to make those payments.
(b) Each Purchaser shall be entitled to receive with
respect to that Purchaser's Notes, interest from the Closing Date
through October 31, 2001.
Section 6.3 Expenses.
--------
The Company shall reimburse the Bank for its actual
out-of-pocket expenses incurred in connection with its
obligations pursuant to this Section 6 (including, but not
limited to, actual expenses for stationery, postage, telephone,
telex, wire transfers, telecopy and retention of records),
payable within ten (10) days after the Bank gives notice to the
Company that it has incurred such expenses. The obligation to
pay such compensation and reimburse such expenses shall be borne
solely by the Company. Notwithstanding anything herein to the
contrary, the Bank shall not charge the Company any fees for the
issuance of checks or wire transfers to make payments of interest
on or repayments of principal of the Notes. The provisions of
this Section 6.3 shall survive the termination of this Bank
Agreement.
Section 7. Rights and Duties of Bank.
-------------------------
Section 7.1 Duties of the Bank.
------------------
(a) Upon the occurrence and continuation of an Event
of Default, the Bank shall declare the entire outstanding
aggregate principal balance of all the Notes plus all accrued
interest due and immediately payable.
(b) In the event that the Company shall default on its
payment obligations to the Bank under this Bank Agreement, the
Bank shall be entitled to institute action against the Company,
jointly or severally, to collect payment under this Bank
Agreement.
Section 7.2 Events of Default.
-----------------
If any of the following events (an "Event of Default")
shall occur and be continuing for any reason whatsoever (and
whether such occurrence shall be voluntary or involuntary or come
about or be effected by operation of law or otherwise):
(i) the Company defaults in the payment of any
part of the principal of any Note when the same shall
become due and payable on October 31, 2001, and such
default shall have continued for more than 30 days; or
(ii) the Company defaults in the payment of any
part of the interest on any Note when the same shall
become due and payable, and such default shall have
continued for more than 15 days;
then, the Bank, upon instruction by the owners of at least 50% of
the principal amount of the Notes, by notice to the Company, or
the owners of at least 75% of the principal amount of the Notes,
by notice to the Company and to the Bank, may declare the entire
principal of and accrued interest on all Notes to become
immediately due and payable at par without presentment, demand,
protest or other notice of any kind, all of which are waived by
the Company.
Section 7.3 Fees and Expenses.
-----------------
In addition to the administration fee set forth in
Section 1.7 hereof, the Bank shall be entitled to compensation
for its services under this Section 7 in the amount of $2,500 as
an acceptance fee, payable upon execution and delivery of this
Bank Agreement; and administrative fees, payable annually on the
anniversary date of this Bank Agreement, based upon the aggregate
principal amount of outstanding Notes ten days prior to the
anniversary date, in the following amounts:
$ 500,000 to $ 1,000,000 outstanding . . $2,500.00
$ 1,000,001 to $ 2,000,000 outstanding . . $3,000.00
$ 2,000,001 to $ 3,000,000 outstanding . . $4,000.00
$ 3,000,001 to $ 4,000,000 outstanding . . $5,000.00
$ 4,000,001 to $ 5,000,000 outstanding . . $6,000.00
$ 5,000,001 to $ 6,000,000 outstanding . . $7,000.00
$ 6,000,001 to $ 7,000,000 outstanding . . $8,000.00
$ 7,000,001 to $ 7,500,000 outstanding . . $8,500.00
The Company shall reimburse the Bank for its actual out-of-pocket
expenses incurred in connection with its obligations pursuant to
this Section 7 (including, but not limited to, actual expenses
for stationery, postage, telephone, telex, wire transfers,
telecopy, retention of records, and the filing of Financing
Statements, and reasonable fees and expenses of counsel), payable
within ten (10) days after the Bank gives notice to the Company
that it incurred such expenses. The obligation to pay such
compensation and reimburse such expenses shall be borne solely by
the Company. The provisions of this Section 7.3 shall survive
the termination of this Bank Agreement.
Section 7.4 Other Rights and Duties of Bank.
-------------------------------
(a) The Bank need exercise only those rights and need
perform only those duties that are contemplated or specifically
set forth in this Bank Agreement and no others.
(b) Notwithstanding anything herein to the contrary,
the Bank may not be relieved from liability for its own grossly
negligent action, its own grossly negligent failure to act, or
its own willful misconduct except that
(i) This paragraph does not limit the effect of
paragraph (a) of this Section.
(ii) The Bank shall not be liable with respect to
any action it takes or omits to take in good faith in
accordance with a notice received by it pursuant to the
subscription agreements executed by the Purchasers in
connection with the purchase of the Notes.
(c) The Bank may rely on any document believed by it
to be genuine and to have been signed or presented by the proper
person. The Bank need not investigate any fact or matter stated
in the document.
(d) Before the Bank acts or refrains from acting, it
may require an officer's certificate or an opinion of counsel.
The Bank shall not be liable for any action it takes or omits to
take in good faith in reliance on the certificate or opinion.
(e) The Bank may act through agents and shall not be
responsible for the misconduct or negligence of any agent
appointed with due care.
Section 8. No Representations.
------------------
The Bank makes no representation as to the validity or
adequacy of this Bank Agreement or the Notes delivered to it by
the Company; it shall not be accountable for the Company's use of
the proceeds from the Notes and it shall not be responsible for
any statement in the Memorandum or in the Notes other than its
authentication.
Section 9. Indemnification.
---------------
The Company shall indemnify, defend and hold the Bank
harmless from and against any and all loss, damage, liability,
claim and expense, including taxes (other than taxes based on the
income of the Bank) incurred by the Bank arising out of or in
connection with its acceptance or performance of its obligations
under this Bank Agreement, including the legal costs and expenses
of defending itself against any claim or liability in connection
with its performance under this Bank Agreement. The Bank shall
notify the Company promptly of any claim for which it may seek
indemnity. The Company shall defend the claim and the Bank shall
cooperate in the defense. The Bank may have separate counsel and
shall pay the fees and expenses of such counsel. The Company
need not reimburse any expense or indemnify against any loss or
liability incurred by the Bank through gross negligence or bad
faith. The provisions of this Section 9 shall survive the
termination of this Bank Agreement.
Section 10. Replacement of Bank.
-------------------
(a) A resignation or removal of the Bank and
appointment of a successor bank shall become effective only upon
the successor bank's acceptance of appointment as provided in
this Section 10.
(b) The Bank may resign by so notifying the Company.
The Company may remove the Bank if:
(i) the Bank is adjudged a bankrupt or an
insolvent;
(ii) a receiver or public officer takes charge of
the Bank or its property; or
(iii) the Bank becomes incapable of acting.
(c) (i) If the Bank resigns or is removed, the
Company shall promptly appoint a successor bank.
(ii) A successor bank shall deliver a written
acceptance of its appointment to the retiring Bank and
the Company. Thereupon the resignation or removal of
the retiring Bank shall become effective and the
successor bank shall have all the rights, powers and
duties of the Bank under this Bank Agreement. The
successor bank shall mail a notice of its succession to
Note owners. Upon payment to the retiring Bank of all
amounts owed to it under this Bank Agreement, the
retiring Bank shall promptly transfer all property held
by it under the terms of this Bank Agreement.
(d) If the Bank consolidates, merges or converts into,
or transfers all or substantially all of its corporate trust
business to, another corporation, the successor corporation
without any further act shall be the successor bank.
Section 11. Notices.
-------
All notices and other communications pursuant to this
Bank Agreement shall be in writing, subject to the terms of
Section 1.6 hereof, and shall be delivered by hand or sent by
registered, certified, return receipt requested, or first class
mail, or by facsimile, confirmed by writing, delivered by hand or
sent by registered, certified, return receipt requested, or first
class mail delivered or sent on the date of the facsimile,
addressed as follows:
(a) If to the Company:
Grand Court Lifestyles, Inc.
One Executive Drive
Fort Lee, New Jersey 07024
Facsimile Number: (201) 947-6663
Attention: Keith Marlowe, Esq.
With a copy to:
Reid & Priest LLP
40 West 57th Street
New York, New York 10019
Facsimile Number: (212) 603-2298
Attention: Michele R. Jawin, Esq.
(b) If to Note owners:
At the addresses of the registered owners
appearing in the register maintained by the Bank.
(c) If to Bank:
The Bank of New York
101 Barclay Street
New York, New York 10286
Facsimile Number: (212) 815-5999
Attention: ____________________,
Corporate Trust
Trustee Administration
or at such other address as a party shall have last furnished to
the other parties hereto in writing. Any notice provided for
herein shall be deemed to have been given on the date of the
receipt of the notice by hand delivery or of the facsimile or the
third Business Day after the date of mailing, certified mail,
return receipt requested.
Section 12. Choice of Law.
-------------
This Bank Agreement shall be governed by the laws of
the State of New York, without giving effect to the principles of
conflicts of law thereof.
Section 13. Prior Agreements; Amendment.
---------------------------
This Bank Agreement sets forth the entire agreement of
the parties hereto with respect to the subject matter hereof and
supersedes all prior agreements, contracts, promises,
representations, warranties, statements, arrangements and
understandings, if any, among the parties hereto or their
representatives with respect to the subject matter hereof. No
waiver, modification or amendment of any provision, term or
condition hereto shall be valid unless in writing and signed by
all parties hereto, and any such waiver, modification or
amendment shall be valid only to the extent therein set forth.
Section 14. Successors.
----------
This Bank Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors
and permitted assigns.
Section 15. Enforceability.
--------------
Any provision of this Bank Agreement which may by
determined by competent authority to be prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions
hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such
provision in any other jurisdiction.
Section 16. Counterparts.
------------
This Bank Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of
which together shall constitute one instrument.
Section 17. Use of The Bank of New York Name.
--------------------------------
(a) No printed or other material in any language,
including prospectuses, notices, reports, and promotional
materials which mentions the Bank by name or the rights, powers,
or duties of the Bank under this Bank Agreement shall be issued
by any of the other parties hereto, or on such party's behalf,
without the prior written consent of the Bank.
(b) Notwithstanding the above, the Bank hereby
consents to the use of its name and its rights, powers and duties
under this Bank Agreement in the Memorandum and any notices and
reports required under applicable Federal and state securities
laws in connection therewith. In addition, the Bank hereby
consents to the use of its name and its rights, powers, and
duties under this Bank Agreement in the promotional material
included herewith as Exhibit C.
[INTENTIONALLY LEFT BLANK]
<PAGE>
Section 18. Definitions.
-----------
All terms used in this Bank Agreement and not otherwise
defined herein shall have the meanings ascribed to them in the
Memorandum.
IN WITNESS WHEREOF, the parties hereto have executed
this Bank Agreement as of the date first above written.
GRAND COURT LIFESTYLES, INC. THE BANK OF NEW YORK
By: /s/ Bernard M. Rodin By: /s/ Mark G. Walsh
------------------------ -------------------------
Name: Bernard M. Rodin Name: Mark G. Walsh
Title: President Title: Assistant Vice President
<PAGE>
EXHIBIT A
TO BANK AGREEMENT
[FORM OF NOTICE]
NOTICE OF VOLUNTARY REDEMPTION
------------------------------
of
GRAND COURT LIFESTYLES, INC.
RETIREMENT FINANCING NOTES-III
To holders of Grand Court Lifestyles, Inc. (the
"Company") 13.125% Retirement Financing Notes-III due October 31,
2001 (the "Notes"):
NOTICE is hereby given by The Bank of New York (the
"Bank"), as paying agent for the Notes, that, pursuant to the
voluntary redemption provision of Section 5.6 of the Bank
Agreement between the Company and the Bank, dated _____________,
1996, the Company has elected to redeem and pay off on October
31, 2001 (the "Redemption Date") [all] [a portion of] the above
mentioned Notes then outstanding, in accordance with the terms of
the Notes, and that [all] [a portion of] the Notes are called for
redemption on the Redemption Date.
The redemption price on the Redemption Date shall be
$_______. Interest on the Notes so redeemed shall cease from and
after the Redemption Date.
Dated: [month] [day], [year]
------- ----- ------
THE BANK OF NEW YORK
<PAGE>
EXHIBIT B
TO BANK AGREEMENT
[FORM OF NOTICE]
NOTICE OF MANDATORY REDEMPTION
------------------------------
OF
GRAND COURT LIFESTYLES, INC.
Retirement Financing Notes-III
To holders of Grand Court, Lifestyles, Inc. (the
"Company") 13.125% Retirement Financing Notes-III due October 31,
2001 (the "Notes"):
NOTICE is hereby given by The Bank of New York (the
"Bank"), as paying agent for the Notes, that, pursuant to the
mandatory redemption provision of Section 5.6 of the Bank
Agreement between the Company and the Bank, dated August ___,
1996, the Company will redeem and pay off on October 31, 2001
(the "Redemption Date") 100% of the above mentioned Notes, in
accordance with the terms of the Notes, and that 100% of the
Notes are called for redemption on the Redemption Date.
Interest on the Notes so redeemed shall cease from and
after the Redemption Date.
Dated: [month] [day], [year]
------- ----- ------
THE BANK OF NEW YORK
<PAGE>
EXHIBIT C
TO BANK AGREEMENT
DRAFT OF PROMOTIONAL MATERIALS
TO BE USED IN CONNECTION WITH
RETIREMENT FINANCING NOTES-III
Exhibit 10.11(b)
BANK AGREEMENT
THIS BANK AGREEMENT, dated as of October 22, 1996 (as
amended, modified or supplemented from time to time, the "Bank
Agreement"), is by and among Grand Court Lifestyles, Inc., a
Delaware corporation (the "Company") and The Bank of New York
(the "Bank").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company is issuing its Notes Retirement
Financing Notes-IV due March 31, 2002 (the "Notes") pursuant to
the Company's Confidential Private Placement Memorandum, as the
same may be from time to time amended (the "Memorandum"); and
WHEREAS, the Company's private placement of the Notes
(the "Offering") will terminate on the earlier of (i) the date on
which all the Notes are sold or (ii) March 31, 1998 (the
"Offering Termination Date"); and
WHEREAS, subscribers will purchase Notes at a closing
(the "Initial Closing") to be held at such time as the Company
may determine in its discretion and, thereafter, from time to
time (each, singly, an "Additional Closing," and, collectively,
the "Additional Closings"), at the discretion of the Company, on
such day or days as may be determined by the Company, as
subscriptions are received and accepted (hereinafter the date of
the Initial Closing and the date of any Additional Closing are
each referred to as a "Closing Date"); and
WHEREAS, the Company desires to deliver to the Bank
amounts received by the Company from subscribers for Notes (each,
singly, a "Purchaser," and, collectively, the "Purchasers"), in
payment for the Notes, which amounts shall be released to the
Company at the Initial Closing and at each Additional Closing;
and
WHEREAS, each Purchaser shall be entitled to receive,
on a monthly basis prior to the Closing Date with respect to that
Purchaser's Notes, distributions representing interest accrued on
that Purchaser's subscription payment at a rate of 13.125% per
annum; and
WHEREAS, the Company desires to establish an interest
bearing escrow fund to be called the Retirement Financing
Notes-IV Escrow Fund Account (the "Fund") with the Bank; and
WHEREAS, each Purchaser shall be entitled to receive,
on a monthly basis after the Closing Date with respect to that
Purchaser's Notes, interest on his Note at the rate of 13.125%
per annum; and
WHEREAS, the Company wishes to appoint the Bank as
Escrow Agent, Authenticating Agent, Paying Agent, Registrar and
Transfer Agent with respect to the Notes and the Bank is willing
to accept such appointments upon the terms and conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the foregoing
premises and the mutual covenants herein contained and other good
and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto hereby agree as follows:
Section 1. Escrow Agent.
------------
Section 1.1 Appointment.
-----------
The Company hereby appoints and designates the Bank as
Escrow Agent for the purposes set forth in this Section 1, and
the Bank hereby accepts such appointment.
Section 1.2 Escrow.
------
The Company shall from time to time deliver amounts
received from Purchasers in payment for the Notes ("Subscription
Payments") to the Bank. The Bank shall deposit the Subscription
Payments in the Fund to be established in the Company's name for
this purpose by the Bank. Subscription Payments delivered for
deposit in the Fund shall be invested in short term certificates
of deposit (including certificates of deposit issued by the
Bank), A-1 commercial paper, P-1 commercial paper, interest
bearing money market accounts, all as specified in writing by the
Company and held in trust for the benefit of Purchasers. In the
event the Company should fail to so specify, Subscription
Payments delivered for deposit in the Fund shall be invested in
the Bank's Deposit Reserve, an interest-bearing account, for the
benefit of the Purchasers. The Bank is not responsible for
interest, losses, taxes or other charges on investments. All
checks delivered to the Bank for deposit in the Fund shall be
payable to the order of "Retirement Financing Notes-IV - Escrow
Account." Concurrently with such delivery, the Company shall
deliver to the Bank a statement of the name, mailing address and
tax identification number of each Purchaser whose Subscription
Payment is being delivered, and a schedule listing the aggregate
Notes and aggregate cumulative Subscription Payments to date
delivered for deposit in the Fund. The Bank shall deposit the
Subscription Payments to reflect multiple beneficiaries in
accordance with 12 CFR 330.4, 330.10. For the purposes of this
Bank Agreement, the Company is authorized to make deposits and
give instructions as to investments of deposits and otherwise, as
contemplated in this Bank Agreement, to the Bank.
Section 1.3 Interest.
--------
During the period (the "Escrow Period") commencing upon
the date that any Purchaser's Subscription Payment constitutes
Cleared Funds (as defined in Section 1.11 hereof) and ending on
the day immediately preceding the Closing Date with respect to
that Purchaser's Notes, interest will accrue on that Purchaser's
Subscription Payment at a rate of 13.125% per annum, computed on
the basis of a year of 360 days consisting of 12 thirty day
months. Interest shall be payable on the fifteenth day of each
month if such day is a Business Day. If such day is not a
Business Day, then the next Business Day shall be deemed the
Interest Payment Date (each, an "Interest Payment Date"). Four
Business Days prior to each such Interest Payment Date, the Bank
shall give the Company written notice of the difference between
the amount of interest which will be payable on Subscription
Payments on such Interest Payment Date and the amount of interest
accruing on the Fund which will be available for such payment on
such Interest Payment Date. Not later than 11:30 a.m. (New York
time) on such Interest Payment Date, the Company shall deposit
with the Bank the amount of such difference. On each Interest
Payment Date, the Bank shall pay interest which is due and
payable to the respective Purchasers by mailing its check in the
appropriate amount to each Purchaser by first class mail to the
Purchaser's mailing address provided to the Bank pursuant to
Section 1.2 hereof. In the event that the Company shall default
in its payment obligations to the Bank under this Section 1.3,
the Bank shall mail its check in the amount of each Purchaser's
pro rata share of interest earned and paid on the Fund's assets
as provided in this Section 1.3. For purposes of this Bank
Agreement, "Business Day" shall mean any day other than a day on
which the Bank is authorized to remain closed in New York City.
Section 1.4 The Initial Closing and
-----------------------
Additional Closings.
-------------------
Upon the scheduling of the Initial Closing and each
Additional Closing, the Company shall give written notice thereof
to the Bank not less than one (1) Business Day prior to the date
scheduled for each such closing.
Section 1.5 Cancellation.
------------
The Company shall give the Bank notice of any Purchaser
who cancels his Subscription prior to his Closing Date or whose
Subscription Payment was deposited pursuant to Section 1.2 but
whose Subscription is rejected, setting forth the name and
mailing address of the Purchaser and the amount of the rejected
or cancelled subscription. As promptly as practicable
thereafter, the Bank shall pay the amount of the cancelled or
rejected subscription from the Fund to the Purchaser whose
Subscription was cancelled or rejected as directed by the
Company. Any interest earned thereon and not theretofore
distributed pursuant to Section 1.3 hereof shall be paid to the
Purchaser in accordance with Section 1.3 hereof. Payment shall
be made by check payable to the Purchaser mailed by the Bank by
first class mail directly to the Purchaser at the mailing address
of the Purchaser.
Section 1.6 Payment.
-------
(a) The Bank, at the Initial Closing and each
Additional Closing, upon written instruction from either Mr. John
Luciani and Mr. Bernard M. Rodin, as the designated officers of
the Company, shall transfer to the Company or to such third party
or parties as may be directed by Mr. Luciani or Mr. Rodin the
Cleared Funds then held in the Fund by the Bank. Any interest
earned thereon and not theretofore distributed in accordance with
Section 1.3 hereof shall be paid to the Purchasers in accordance
with Section 1.3 hereof.
(b) In the event that the Bank should receive written
instructions, as contemplated in subparagraph (a) above, from any
one other than Mr. Luciani or Mr. Rodin, regardless of whether
that person is an officer, director, employee, agent or
representative of the Company, those instructions are to be
deemed to be invalid and contrary to the intent of this Bank
Agreement.
Section 1.7 Fees and Expenses.
-----------------
In addition to the fees set forth in Section 7.3
hereof, the Bank shall be entitled to an administration fee as
compensation for its services under this Section 1 in the amount
of $5,000 payable (i) upon the execution and delivery of this
Bank Agreement and (ii) subject to an adjustment as provided in
the next succeeding sentence of this Section 1.7, on the first
anniversary date of this Bank Agreement, provided however, that
the Bank shall not be entitled to payment of an administration
fee on such first anniversary date if all of the Notes have been
sold prior thereto. In the event the Offering terminates prior
to March 31, 1998, the Company shall be entitled to a refund
payable ten days after the Offering Termination Date, of that
portion of the administration fee paid to the Bank on the first
anniversary date of the Bank Agreement, in an amount calculated
as the difference between (a) $5,000 and (b) the product of (x)
$5,000 and (y) a fraction, the numerator of which is the number
of days between the first anniversary date of this Bank Agreement
and the Offering Termination Date, inclusive, and the denominator
of which is 365. In no event shall the Bank be entitled to
payment of an administration fee, as provided for in this
Section 1.7, following the Offering Termination Date. The
Company shall also pay the Bank $5 for the preparation and
execution of each Purchaser's account including the calculation
of interest accrued; $1 for the preparation of each Purchaser's
1099 tax form; $25 for each investment transaction in the Fund;
$25 for each returned "bounced" check of a Purchaser; and $500
for each Additional Closing, payable within 10 days after the
Bank gives the Company notice that any such amounts are due and
payable. Notwithstanding anything herein to the contrary, the
Bank shall not charge the Company for the issuance of checks or
wire transfers to make monthly payments of accrued interest on
Subscription Payments. No additional fee will be payable with
respect to wire transfers of and unreturned checks for
Subscription Payments. In addition, the Company shall reimburse
the Bank for other actual out-of-pocket expenses incurred in
connection with its obligations pursuant to this Section 1
(including, but not limited to, actual expenses for stationery,
postage, telephone, telex, wire transfers, telecopy and retention
of records, and reasonable fees and expenses of counsel), payable
within ten (10) days after the Bank gives notice to the Company
that it has incurred such expenses. The obligation to pay such
compensation and reimburse such expenses shall be borne solely by
the Company. Amounts held in the Fund shall not be available to
satisfy this obligation or any other obligation of the Company to
the Bank. The provisions of this Section 1.7 shall survive the
termination of this Bank Agreement.
Section 1.8 Termination of Offering.
-----------------------
If the Offering should be terminated, the Company shall
promptly so advise the Bank in writing, and shall authorize and
direct the Bank to return the Subscription Payments to the
Purchasers. The Bank thereupon shall return those Subscription
Payments to the extent they have not been distributed per
Section 1.6 to the Purchasers from whom they were received. Any
interest earned on the Subscription Payments and not theretofore
distributed pursuant to Section 1.3 hereof shall be paid in
accordance with Section 1.3 hereof. Upon paying such
disbursements to the Purchasers and the Company, the Bank shall
be relieved of all of its obligations and liabilities under this
Bank Agreement.
Section 1.9 Form 1099, etc.
--------------
In compliance with the Internal Revenue Code of 1986,
as amended, the Company shall request that each Purchaser furnish
to the Bank such Purchaser's taxpayer identification number and a
statement certified under penalties of perjury that (a) such
taxpayer identification number is true and correct and (b) the
Purchaser is not subject to withholding of 31% of reportable
interest, dividends or other payments.
Section 1.10 Uncollected Funds.
-----------------
In the event that any funds, including Cleared Funds,
deposited in the Fund prove uncollectible after the funds
represented thereby have been released by the Bank pursuant to
this Bank Agreement, the Company shall reimburse the Bank upon
request for the face amount of such check or checks; and the Bank
shall, upon instruction from the Company, deliver the returned
checks or other instruments to the Company. This section shall
survive the termination of this Bank Agreement.
Section 1.11 Cleared Funds.
-------------
For the purpose of this Bank Agreement, Subscription
Payments shall constitute "Cleared Funds" in accordance with the
following:
(a) if paid by wire transfer, such funds shall
constitute Cleared Funds on the date received by the Bank;
(b) if paid by check drawn on a New York Clearing
House Bank, such funds shall constitute Cleared Funds on the
second Business Day following the date received by the Bank; and
(c) if paid by check drawn on any bank other than a
New York Clearing House Bank, such funds shall constitute Cleared
Funds on the third Business Day following the date received by
the Bank.
Section 2. Execution.
---------
The Notes shall be executed on behalf of the Company by
the manual or facsimile signature of an officer of the Company.
All such facsimile signatures shall have the same force and
effect as if the officer had manually signed the Notes. In case
any officer of the Company whose signature shall appear on a Note
shall cease to be such officer before the delivery of such Note
or the issuance of a new Note following a transfer or exchange,
such signature or such facsimile shall nevertheless be valid and
sufficient for all purposes, the same as if such officer had
remained an officer until delivery.
Section 3. Authenticating Agent.
--------------------
Section 3.1 Appointment.
-----------
The Company hereby appoints and designates the Bank as
Authenticating Agent for the purposes set forth in this
Section 3, and the Bank hereby accepts such appointment.
Section 3.2 Authentication.
--------------
Only such Notes as shall have the Certificate of
Authentication endorsed thereon in substantially the form set
forth in the form of Note attached to the Memorandum, duly
executed by the manual signature of an authorized signatory of
the Bank, shall be entitled to any right or benefit under this
Bank Agreement. No Notes shall be valid or obligatory for any
purpose unless and until such Certificate of Authentication shall
have been duly executed by the Bank; and such executed
certificate upon any such Note shall be conclusive evidence that
such Note has been authenticated and delivered under this Bank
Agreement. The Certificate of Authentication on any Note shall
be deemed to have been executed by the Bank if signed by an
authorized signatory of the Bank, but it shall not be necessary
that the same person sign the Certificate of Authentication on
all of the Notes.
Section 4. Mutilated, Lost, Stolen or Destroyed
------------------------------------
Notes.
-----
Subject to applicable law, in the event any Note is
mutilated, lost, stolen or destroyed, the Company may authorize
the execution and delivery of a new Note of like date, number,
maturity and denomination as that mutilated, lost, stolen or
destroyed, provided, however, that in the case of any mutilated
Note, such mutilated Note shall first be surrendered to the
Company, and in the case of any lost, stolen or destroyed Note,
there shall be first furnished to the Company and the Bank,
evidence of the ownership thereof and of such loss, theft or
destruction satisfactory to the Company and the Bank, together
with indemnification through a note of indemnity or otherwise as
shall be satisfactory to the Company and the Bank. The Company
may charge the Purchaser of such Note with any amounts
satisfactory to the Company and the Bank and permitted by
applicable law.
Section 5. Registrar and Transfer Agent.
----------------------------
Section 5.1 Appointment.
-----------
The Company hereby appoints and designates the Bank as
Registrar and Transfer Agent for the purposes set forth in this
Section 5, and the Bank hereby accepts such appointment.
Section 5.2 Registration, Transfer and Exchange of
--------------------------------------
Notes.
-----
The Notes are issuable only as registered Notes without
coupons in the denomination of $100,000 or any multiple or any
fraction thereof at the sole discretion of the Company. Each
Note shall bear the following restrictive legend: "These
securities have not been registered under the Securities Act of
1933, as amended, and may be offered and sold or otherwise
transferred only if registered pursuant to the provisions of that
Act or if an exemption from registration is available." The Bank
shall keep at its principal corporate trust office a register in
which the Bank shall provide for the registration and transfer of
Notes. Upon surrender for registration of transfer of any Note
at such office of the Bank, the Company shall execute, pursuant
to Section 2 hereof, and mail by first class mail to the Bank,
and the Bank shall authenticate, pursuant to Section 3 hereof,
and mail by first class mail to the designated transferee, or
transferees, one or more new Notes in an aggregate principal
amount equal to the unpaid principal amount of such surrendered
Note, registered in the name of the designated transferee or
transferees. Every Note presented or surrendered for
registration of transfer shall be duly endorsed, or be
accompanied by a written instrument of transfer duly executed, by
the holder of such Note or his attorney duly authorized in
writing. Notwithstanding the preceding, the Notes may not be
transferred without an effective registration statement under the
Securities Act of 1933 covering the Notes or an opinion of
counsel satisfactory to the Company and its counsel that such
registration is not necessary under the Securities Act of 1933
(the "Securities Act"). At the option of the owner of any Note,
such Note may be exchanged for other Notes of any authorized
denominations, in an aggregate principal amount equal to the
unpaid principal amount of such surrendered Note, upon surrender
of the Note to be exchanged at the principal corporate trust
office of the Bank; provided, however, that any exchange for
denominations other than $100,000 or an integral multiple thereof
shall be at the sole discretion of the Company. Whenever any
Note is so surrendered for exchange, the Company shall execute,
pursuant to Section 2 hereof, and deliver to the Bank, and the
Bank shall authenticate, pursuant to Section 3 hereof, and mail
by first class mail to the designated transferee, or transferees,
the Note or Notes which the Note owner making the exchange is
entitled to receive. Any Note or Notes issued in exchange for
any Note or upon transfer thereof shall be dated the date to
which interest has been paid on such Note surrendered for
exchange or transfer, and neither gain nor loss of interest shall
result from any such exchange or transfer. In addition, each
Note issued upon such exchange or transfer shall bear the
restrictive legend set forth above unless in the opinion of
counsel to the Company, such legend is not required to ensure
compliance with the Securities Act.
Section 5.3 Owner.
-----
The person in whose name any Note shall be registered
shall be deemed and regarded as the absolute owner thereof for
all purposes, and payment of or on account of the principal of or
interest on such Note shall be made only to or upon the order of
the registered owner thereof or his duly authorized legal
representative. Such registration may be changed only as
provided in this Section 5, and no other notice to the Company or
the Bank shall affect the rights or obligations with respect to
the transfer of a Note or be effective to transfer any Note. All
payments to the person in whose name any Note shall be registered
shall be valid and effectual to satisfy and discharge the
liability upon such Note to the extent of the sum or sums to be
paid.
Section 5.4 Transfer Agent.
--------------
The Bank shall send executed, authenticated Notes to
Purchasers on Closing Dates as required and to subsequent owners
and transferees who are entitled to receive Notes pursuant to the
terms of this Bank Agreement, by first class mail.
Section 5.5 Charges and Expenses.
--------------------
No service charge shall be made for any transfer or
exchange of Notes, but in all cases in which Notes shall be
transferred or exchanged hereunder, as a condition to any such
transfer or exchange, the owner of the Note shall, prior to the
delivery of any new Note pursuant to such transfer or exchange,
reimburse the Company and the Bank for their respective actual
out-of-pocket expenses incurred in connection therewith
(including, but not limited to, any tax, fee or other
governmental charge required to be paid with respect to such
transfer or exchange, actual expenses for stationery, postage,
telephone, telex, wire transfers, telecopy and retention of
records, and reasonable fees and expenses of their respective
counsel). The provisions of this Section 5.5 shall survive the
termination of this Bank Agreement.
Section 5.6 Redemption at the Option of the Company.
---------------------------------------
(a) Whenever the Company shall effect a redemption at
the option of the Company, at any time in its sole and absolute
discretion, of part or all of the Notes, which shall be without
premium or penalty, the Company shall give written notice thereof
to the Bank at least forty (40) days prior to the date set forth
for redemption, the manner in which redemption shall be effected
and all the relevant details thereof. The Bank shall give
written notice to the Purchasers of that redemption at least
thirty (30) days prior to the date set forth for redemption in
the form included herewith as Exhibit A. The Bank shall register
the cancellation of the whole or a portion of the unredeemed
Notes, as appropriate. In any event, new Notes will not be
issued to reflect the non-redeemed portion of the Notes. No
interest shall be payable on the redeemed portion of a Note from
and after the date of redemption.
(b) The Bank hereby acknowledges that the Company may
effect a redemption at the option of the Company, at any time in
its sole and absolute discretion, of part or all of the Notes
without premium or penalty.
Section 5.7 Mandatory Redemption.
--------------------
The Company shall be obligated to redeem 100% of the
Notes due March 31, 2002. When the Company shall effect the
mandatory redemption, the Company shall give written notice
thereof to the Bank at least forty (40) days prior to the date
set forth for redemption, the manner in which redemption shall be
effected and all relevant details thereof. The Bank shall give
written notice to the Purchasers of that redemption at least
thirty (30) days prior to the date set forth for redemption in
the form included herewith as Exhibit B. The Bank shall register
the cancellation of the whole of the redeemed Notes.
Section 6. Paying Agent.
------------
Section 6.1 Appointment.
-----------
The Company hereby appoints and designates the Bank as
Paying Agent for the purposes set forth in this Section 6, and
the Bank hereby accepts such appointment.
Section 6.2 Payment Provisions.
------------------
(a) The Bank shall pay interest on Subscription
Payments and principal of and interest on the Notes to the
persons in whose names the Notes are registered, subject to the
limitations contained in Section 5.6(a), Section 5.7 and in
accordance with the terms and provisions of this Bank Agreement
and the Notes, by check mailed by first class mail to the
registered owner of a Note at his address as it appears in the
register; provided that not later than 11:30 a.m. (New York time)
on the Interest Payment Date or date on which principal of any
Note is due and payable, the Company shall provide the Bank with
sufficient funds to make those payments.
(b) Each Purchaser shall be entitled to receive with
respect to that Purchaser's Notes, interest from the Closing Date
through March 31, 2002.
Section 6.3 Expenses.
--------
The Company shall reimburse the Bank for its actual
out-of-pocket expenses incurred in connection with its
obligations pursuant to this Section 6 (including, but not
limited to, actual expenses for stationery, postage, telephone,
telex, wire transfers, telecopy and retention of records),
payable within ten (10) days after the Bank gives notice to the
Company that it has incurred such expenses. The obligation to
pay such compensation and reimburse such expenses shall be borne
solely by the Company. Notwithstanding anything herein to the
contrary, the Bank shall not charge the Company any fees for the
issuance of checks or wire transfers to make payments of interest
on or repayments of principal of the Notes. The provisions of
this Section 6.3 shall survive the termination of this Bank
Agreement.
Section 7. Rights and Duties of Bank.
-------------------------
Section 7.1 Duties of the Bank.
------------------
(a) Upon the occurrence and continuation of an Event
of Default, the Bank shall declare the entire outstanding
aggregate principal balance of all the Notes plus all accrued
interest due and immediately payable.
(b) In the event that the Company shall default on its
payment obligations to the Bank under this Bank Agreement, the
Bank shall be entitled to institute action against the Company,
jointly or severally, to collect payment under this Bank
Agreement.
Section 7.2 Events of Default.
-----------------
If any of the following events (an "Event of Default")
shall occur and be continuing for any reason whatsoever (and
whether such occurrence shall be voluntary or involuntary or come
about or be effected by operation of law or otherwise):
(i) the Company defaults in the payment of any
part of the principal of any Note when the same shall
become due and payable on March 31, 2002, and such
default shall have continued for more than 30 days; or
(ii) the Company defaults in the payment of any
part of the interest on any Note when the same shall
become due and payable, and such default shall have
continued for more than 15 days;
then, the Bank, upon instruction by the owners of at least 50% of
the principal amount of the Notes, by notice to the Company, or
the owners of at least 75% of the principal amount of the Notes,
by notice to the Company and to the Bank, may declare the entire
principal of and accrued interest on all Notes to become
immediately due and payable at par without presentment, demand,
protest or other notice of any kind, all of which are waived by
the Company.
Section 7.3 Fees and Expenses.
-----------------
In addition to the administration fee set forth in
Section 1.7 hereof, the Bank shall be entitled to compensation
for its services under this Section 7 in the amount of $2,500 as
an acceptance fee, payable upon execution and delivery of this
Bank Agreement; and administrative fees, payable annually on the
anniversary date of this Bank Agreement, based upon the aggregate
principal amount of outstanding Notes ten days prior to the
anniversary date, in the following amounts:
$ 500,000 to $ 1,000,000 outstanding $2,500.00
$ 1,000,001 to $ 2,000,000 outstanding $3,000.00
$ 2,000,001 to $ 3,000,000 outstanding $4,000.00
$ 3,000,001 to $ 4,000,000 outstanding $5,000.00
$ 4,000,001 to $ 5,000,000 outstanding $6,000.00
$ 5,000,001 to $ 6,000,000 outstanding $7,000.00
$ 6,000,001 to $ 7,000,000 outstanding $8,000.00
$ 7,000,001 to $ 7,500,000 outstanding $8,500.00
The Company shall reimburse the Bank for its actual out-of-pocket
expenses incurred in connection with its obligations pursuant to
this Section 7 (including, but not limited to, actual expenses
for stationery, postage, telephone, telex, wire transfers,
telecopy, retention of records, and the filing of Financing
Statements, and reasonable fees and expenses of counsel), payable
within ten (10) days after the Bank gives notice to the Company
that it incurred such expenses. The obligation to pay such
compensation and reimburse such expenses shall be borne solely by
the Company. The provisions of this Section 7.3 shall survive
the termination of this Bank Agreement.
Section 7.4 Other Rights and Duties of Bank.
-------------------------------
(a) The Bank need exercise only those rights and need
perform only those duties that are contemplated or specifically
set forth in this Bank Agreement and no others.
(b) Notwithstanding anything herein to the contrary,
the Bank may not be relieved from liability for its own grossly
negligent action, its own grossly negligent failure to act, or
its own willful misconduct except that
(i) This paragraph does not limit the effect of
paragraph (a) of this Section.
(ii) The Bank shall not be liable with respect to
any action it takes or omits to take in good faith in
accordance with a notice received by it pursuant to the
subscription agreements executed by the Purchasers in
connection with the purchase of the Notes.
(c) The Bank may rely on any document believed by it
to be genuine and to have been signed or presented by the proper
person. The Bank need not investigate any fact or matter stated
in the document.
(d) Before the Bank acts or refrains from acting, it
may require an officer's certificate or an opinion of counsel.
The Bank shall not be liable for any action it takes or omits to
take in good faith in reliance on the certificate or opinion.
(e) The Bank may act through agents and shall not be
responsible for the misconduct or negligence of any agent
appointed with due care.
Section 8. No Representations.
------------------
The Bank makes no representation as to the validity or
adequacy of this Bank Agreement or the Notes delivered to it by
the Company; it shall not be accountable for the Company's use of
the proceeds from the Notes and it shall not be responsible for
any statement in the Memorandum or in the Notes other than its
authentication.
Section 9. Indemnification.
---------------
The Company shall indemnify, defend and hold the Bank
harmless from and against any and all loss, damage, liability,
claim and expense, including taxes (other than taxes based on the
income of the Bank) incurred by the Bank arising out of or in
connection with its acceptance or performance of its obligations
under this Bank Agreement, including the legal costs and expenses
of defending itself against any claim or liability in connection
with its performance under this Bank Agreement. The Bank shall
notify the Company promptly of any claim for which it may seek
indemnity. The Company shall defend the claim and the Bank shall
cooperate in the defense. The Bank may have separate counsel and
shall pay the fees and expenses of such counsel. The Company
need not reimburse any expense or indemnify against any loss or
liability incurred by the Bank through gross negligence or bad
faith. The provisions of this Section 9 shall survive the
termination of this Bank Agreement.
Section 10. Replacement of Bank.
-------------------
(a) A resignation or removal of the Bank and
appointment of a successor bank shall become effective only upon
the successor bank's acceptance of appointment as provided in
this Section 10.
(b) The Bank may resign by so notifying the Company.
The Company may remove the Bank if:
(i) the Bank is adjudged a bankrupt or an
insolvent;
(ii) a receiver or public officer takes charge of
the Bank or its property; or
(iii) the Bank becomes incapable of acting.
(c) (i) If the Bank resigns or is removed, the
Company shall promptly appoint a successor bank.
(ii) A successor bank shall deliver a written
acceptance of its appointment to the retiring Bank and
the Company. Thereupon the resignation or removal of
the retiring Bank shall become effective and the
successor bank shall have all the rights, powers and
duties of the Bank under this Bank Agreement. The
successor bank shall mail a notice of its succession to
Note owners. Upon payment to the retiring Bank of all
amounts owed to it under this Bank Agreement, the
retiring Bank shall promptly transfer all property held
by it under the terms of this Bank Agreement.
(d) If the Bank consolidates, merges or converts into,
or transfers all or substantially all of its corporate trust
business to, another corporation, the successor corporation
without any further act shall be the successor bank.
Section 11. Notices.
-------
All notices and other communications pursuant to this
Bank Agreement shall be in writing, subject to the terms of
Section 1.6 hereof, and shall be delivered by hand or sent by
registered, certified, return receipt requested, or first class
mail, or by facsimile, confirmed by writing, delivered by hand or
sent by registered, certified, return receipt requested, or first
class mail delivered or sent on the date of the facsimile,
addressed as follows:
(a) If to the Company:
Grand Court Lifestyles, Inc.
One Executive Drive
Fort Lee, New Jersey 07024
Facsimile Number: (201) 947-6663
Attention: Keith Marlowe, Esq.
With a copy to:
Reid & Priest LLP
40 West 57th Street
New York, New York 10019
Facsimile Number: (212) 603-2298
Attention: Michele R. Jawin, Esq.
(b) If to Note owners:
At the addresses of the registered owners
appearing in the register maintained by the Bank.
(c) If to Bank:
The Bank of New York
101 Barclay Street
New York, New York 10286
Facsimile Number: (212) 815-5999
or at such other address as a party shall have last furnished to
the other parties hereto in writing. Any notice provided for
herein shall be deemed to have been given on the date of the
receipt of the notice by hand delivery or of the facsimile or the
third Business Day after the date of mailing, certified mail,
return receipt requested.
Section 12. Choice of Law.
-------------
This Bank Agreement shall be governed by the laws of
the State of New York, without giving effect to the principles of
conflicts of law thereof.
Section 13. Prior Agreements; Amendment.
---------------------------
This Bank Agreement sets forth the entire agreement of
the parties hereto with respect to the subject matter hereof and
supersedes all prior agreements, contracts, promises,
representations, warranties, statements, arrangements and
understandings, if any, among the parties hereto or their
representatives with respect to the subject matter hereof. No
waiver, modification or amendment of any provision, term or
condition hereto shall be valid unless in writing and signed by
all parties hereto, and any such waiver, modification or
amendment shall be valid only to the extent therein set forth.
Section 14. Successors.
----------
This Bank Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors
and permitted assigns.
Section 15. Enforceability.
--------------
Any provision of this Bank Agreement which may by
determined by competent authority to be prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions
hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such
provision in any other jurisdiction.
Section 16. Counterparts.
------------
This Bank Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of
which together shall constitute one instrument.
Section 17. Use of The Bank of New York Name.
--------------------------------
(a) No printed or other material in any language,
including prospectuses, notices, reports, and promotional
materials which mentions the Bank by name or the rights, powers,
or duties of the Bank under this Bank Agreement shall be issued
by any of the other parties hereto, or on such party's behalf,
without the prior written consent of the Bank.
(b) Notwithstanding the above, the Bank hereby
consents to the use of its name and its rights, powers and duties
under this Bank Agreement in the Memorandum and any notices and
reports required under applicable Federal and state securities
laws in connection therewith. In addition, the Bank hereby
consents to the use of its name and its rights, powers, and
duties under this Bank Agreement in the promotional material
included herewith as Exhibit C.
[INTENTIONALLY LEFT BLANK]
<PAGE>
Section 18. Definitions.
-----------
All terms used in this Bank Agreement and not otherwise
defined herein shall have the meanings ascribed to them in the
Memorandum.
IN WITNESS WHEREOF, the parties hereto have executed
this Bank Agreement as of the date first above written.
GRAND COURT LIFESTYLES, INC. THE BANK OF NEW YORK
By: /s/ Bernard M. Rodin By: /s/ Mark G. Walsh
------------------------ ----------------------------
Name: Bernard M. Rodin Name: Mark G. Walsh
Title: President Title: Assistant Vice President
<PAGE>
EXHIBIT A
TO BANK AGREEMENT
[FORM OF NOTICE]
NOTICE OF VOLUNTARY REDEMPTION
------------------------------
OF
GRAND COURT LIFESTYLES, INC.
Retirement Financing Notes-IV
To holders of Grand Court Lifestyles, Inc. (the
"Company") 13.125% Retirement Financing Notes-IV due March 31,
2002 (the "Notes"):
NOTICE is hereby given by The Bank of New York (the
"Bank"), as paying agent for the Notes, that, pursuant to the
voluntary redemption provision of Section 5.6 of the Bank
Agreement between the Company and the Bank, dated _____________,
1996, the Company has elected to redeem and pay off on
__________________________________ (the "Redemption Date") [all]
[a portion of] the above mentioned Notes then outstanding, in
accordance with the terms of the Notes, and that [all] [a portion
of] the Notes are called for redemption on the Redemption Date.
The redemption price on the Redemption Date shall be
$_______. Interest on the Notes so redeemed shall cease from and
after the Redemption Date.
Dated: [month] [day], [year]
------- ----- ------
THE BANK OF NEW YORK
<PAGE>
EXHIBIT B
TO BANK AGREEMENT
[FORM OF NOTICE]
NOTICE OF MANDATORY REDEMPTION
------------------------------
OF
GRAND COURT LIFESTYLES, INC.
Retirement Financing Notes-IV
To holders of Grand Court, Lifestyles, Inc. (the
"Company") 13.125% Retirement Financing Notes-IV due March 31,
2002 (the "Notes"):
NOTICE is hereby given by The Bank of New York (the
"Bank"), as paying agent for the Notes, that, pursuant to the
mandatory redemption provision of Section 5.6 of the Bank
Agreement between the Company and the Bank, dated
_______________________, 1996, the Company will redeem and pay
off on March 31, 2002 (the "Redemption Date") 100% of the above
mentioned Notes, in accordance with the terms of the Notes, and
that 100% of the Notes are called for redemption on the
Redemption Date.
Interest on the Notes so redeemed shall cease from and
after the Redemption Date.
Dated: [month] [day], [year]
------- ----- ------
THE BANK OF NEW YORK
<PAGE>
EXHIBIT C
TO BANK AGREEMENT
DRAFT OF PROMOTIONAL MATERIALS
TO BE USED IN CONNECTION WITH
RETIREMENT FINANCING NOTES-IV
Exhibit 12
GRAND COURT LIFESTYLES, INC.
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
(IN THOUSANDS)(UNAUDITED)
1992 1993 1994 1995
----------- ---------- ---------- ------------
Income (loss) before
provision (benefit)
for income taxes . $ 5,743 $(1,760) $ 1,072 $(4,647)
$14,433 12,947 12,450 15,939
Add fixed charges(1) ------ ------ ------ ------
Income(loss) before
provision (benefit)
for income taxes
available for fixed $20,176 $11,187 $13,522 $11,292
charges . . . . . . . ====== ====== ====== ======
Fixed charges as above $14,433 $12,947 $12,450 $15,939
Capitalized interest
expense . . . . . . . ------ ------ ------ ------
$14,433 $12,947 $12,450 $15,939
Total fixed charges . ====== ====== ====== ======
Preferred stock -- -- -- --
dividend requirement ====== ====== ======= ======
Preferred stock
dividend requirement -- -- -- --
on a pre-tax basis . ====== ====== ======= ======
Total fixed charges
and preferred stock $14,433 $12,947 $12,450 $15,939
dividends . . . . . . ====== ====== ====== ======
Ratio of earnings to
combined fixed charges
and preferred stock 1.40 0.86 1.09 0.71
dividends ====== ====== ====== ======
Deficiency in combined
fixed charges and
preferred stock -- $(1,760)(2) -- $(4,647)(2)
dividends . . . . . . ====== ====== ====== =======
1996 10/31/95 10/31/96
---------- ---------- --------
Income (loss) before
provision (benefit)
for income taxes . . . $ 5,811 $ 3,915 $(23,551)
18,441 13,541 14,530
Add fixed charges(1) . ------ ------ ------
Income(loss) before
provision (benefit) for
income taxes available $24,252 $17,456 $ (9,021)
for fixed charges . . . ====== ====== ======
$18,441 $13,541 $ 14,530
Fixed charges as above ------ ------ ------
Capitalized interest 225
expense . . . . . . . . ------ ------ ------
$18,441 $13,541 $ 14,755
Total fixed charges . . ====== ====== ======
Preferred stock -- -- --
dividend requirement . ===== ===== =====
Preferred stock
dividend requirement on -- -- --
a pre-tax basis . . . . ===== ===== =====
Total fixed charges and
preferred stock $18,441 $13,541 $ 14,755
dividends . . . . . . . ====== ====== ======
Ratio of earnings to
combined fixed charges
and preferred stock 1.32 1.29 -0.61
dividends ====== ====== ======
Deficiency in combined
fixed charges and
preferred stock -- -- $(23,776)(2)
dividends . . . . . . . ====== ====== ======
(1)For purpose of this computation, fixed charges consist of interest
expense, amortization of deferred financing costs and one-third of rental
expenses that is representative of that portion of rental expenses
attributable to interest.
(2)Earnings are inadequate to cover combined fixed charges and preferred
stock dividends.
Exhibit 21
LIST OF SUBSIDIARIES
FOR
GRAND COURT LIFESTYLES, INC.
Grand Court Development Corp.
Grand Court Facilities, Inc.
Grand Court Facilities, Inc., II
Grand Court Facilities, Inc., III
Grand Court Facilities, Inc., IV
Grand Court Facilities, Inc., V
Grand Court Facilities, Inc., VI
Grand Court Facilities, Inc., VII
Grand Court Facilities, Inc., VIII
Grand Court Facilities, Inc., IX
Grand Court Facilities, Inc., X
Grand Court Facilities, Inc., XI
Grand Court Facilities, Inc., XII
Grand Court Facilities, Inc., XIII
Grand Court Facilities, Inc, XIV
J&B Financing, LLC
Leisure Centers, LLC-I
Leisure Centers, LLC-II
Leisure Centers, LLC-III
Leisure Centers, LLC-IV
Leisure Facilities, Inc.
Leisure Facilities, Inc., II
Leisure Facilities, Inc., III
Leisure Facilities, Inc., IV
Leisure Facilities, Inc., V
Leisure Facilities, Inc., VI
Leisure Facilities, Inc., VII
Leisure Facilities, Inc., IX
Leisure Facilities, Inc., X
Leisure Facilities, Inc., XII
Leisure Facilities, Inc. XV
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
To the Board of Directors and Stockholders of
Grand Court Lifestyles, Inc.
Boca Raton, Florida
We consent to the use in this Amendment No. 4 to the Registration
Statement (No. 333-05955) of Grand Court Lifestyles, Inc. on Form
S-1 of our report dated April 26, 1996, except for Note 12c and
13 as to which the date is February 3, 1997, appearing in the
Prospectus, which is part of this Amendment No. 4 to the
Registration Statement and to the reference to us under the
heading "Experts" in such Prospectus.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
New York, New York
February 7, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF OPERATIONS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-END> OCT-31-1996
<CASH> 8,860
<SECURITIES> 0
<RECEIVABLES> 234,486
<ALLOWANCES> 10,109
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 255,315
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 1
<OTHER-SE> 31,305
<TOTAL-LIABILITY-AND-EQUITY> 255,315
<SALES> 27,208
<TOTAL-REVENUES> 40,921
<CGS> 17,493
<TOTAL-COSTS> 4,603
<OTHER-EXPENSES> 30,359
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,017
<INCOME-PRETAX> (23,551)
<INCOME-TAX> 0
<INCOME-CONTINUING> (23,551)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (23,551)
<EPS-PRIMARY> (1.57)
<EPS-DILUTED> (1.57)
</TABLE>
